Article 2: In the following circumstances, where the mandatory provisions of laws and administrative regulations are not violated, and public order and good customs are not violated, the people's courts may find them to be "trading customs" as referred to in the Civil Code:
(1) the usual practice between the parties in the course of their trading activities;
(2) Practices that are commonly adopted in the place where the transaction is conducted, or in a certain field or industry, and which the counterparty knows or should know at the time of entering into the contract.
In the case of trade customs, the burden of proof rests with the party making the claim.
【Purpose of the Article】
This article is about the determination of trading customs.
【Overview of Provisions】
It is a universally recognized principle in international trade to establish the meaning of contract clauses in accordance with custom, especially trade customs. In the course of a transaction, if the parties have a dispute over the terms of the contract, the people's court will usually interpret it according to the transaction customs to infer and approximate the true intention of the parties. The term "trade customs" is widely used in the contract section of the Civil Code, and "trade customs" is a broad concept, so the principle of freedom of contract should be followed when interpreting trade customs, so as to meet the expectations of the parties as much as possible and ensure that the parties are only bound by the customary practices to which they agree. Article 7 of the Judicial Interpretation (II) of the Contract Law stipulates the rules for the people's courts to determine the trade customs in the trial of a case, and determines the burden of proof for the trade customs. On the basis of inheriting the spirit of its provisions, this article further clarifies that the "trading customs" referred to in the Civil Code shall not violate public order and good customs on the basis of applicable law, and replaces the order of the provisions of the two trading customs from the perspective of applicability, so as to give more prominence to the status of the trading customs between the parties.
【Controversial Views】
Article 10 of the Civil Code stipulates that "civil disputes shall be handled in accordance with the law; Where the law does not provide for it, custom may be applied, but it must not be contrary to public order and good customs. This provision reaffirms the two-level legal source system of "law and custom" and establishes the status of customary legal source. There has been a long-standing debate in academic circles about whether there is a difference between the "custom" here and the "transaction custom" in other articles: one view is that Article 10 of the Civil Code is similar to Article 1 of the Civil Code of the Taiwan region. According to the general theory of the mainland and Taiwan, only customary law, that is, the custom stipulated in Article 1, is the status of the source of law; The custom laid down in the remaining provisions does not have the status of a source of law. Professor Yang Lixin believes that customary law is a custom recognized by the state and belongs to the category of law, while custom is a simple fact that is common in society. Another view was that both "customs" were legally appropriate and not customary. After research, we believe that the "custom" in Article 10 of the Civil Code should refer to customary law, while the "transaction custom" in other articles belongs to the de facto custom in a general sense. Custom and customary law are one of the facts and the other of the law; One is followed by the society and the other is recognized by the state; One must be invoked by the parties themselves, and the other is that the judge has the obligation to apply. Customary law derives from custom, but not all customs can rise to customary law and become rules of conduct. To be valid, customary law must meet two elements: first, there are repeated facts in society, which is an objective element; The second is that ordinary people (who do not have to be consistent in this jurisdiction) have the conviction of the law, which is a subjective element. This is "customary law = de facto customary + conviction of law".
[Understanding and Application]
1. Review criteria for trading habits
The prohibition of trading practices in violation of the mandatory provisions of laws and administrative regulations is a clear requirement of lawfulness in Article 7 of the Judicial Interpretation (II) of the Contract Law. Where the content of trading habits violates the mandatory provisions of laws and administrative regulations, it shall be found to be invalid. Even if the parties to the contract have the intention of following the trade customs, the meaning and content of the contract cannot be determined or filled in by this. Trading practices are meaningful only to the extent that they are consistent with the value standards of the legal system.
It should be noted that the legality here should be understood to include not violating public order and good customs. This conclusion can be drawn from the spirit of Article 10 of the Civil Code, which stipulates that customs must not be contrary to public order and good morals. Specifically, Article 10 of the Civil Code clearly defines custom in the sense of the source of law, that is, when there is a legal provision, it directly applies the law without room for custom, and when there is no legal provision, it may not apply a custom that is contrary to public order and good customs, and it should be strictly restricted when the transaction custom may become an important basis for interpreting and supplementing the contract. Therefore, this article clearly stipulates that trading customs shall not violate the mandatory provisions of laws and administrative regulations, nor shall they violate public order and good customs. When applying trading customs, the people's courts shall review their effectiveness through legal provisions and public order and good customs.
Public order and good customs are abstracted from the common excellent culture and moral consciousness of the nation, and are composed of social public order, life order, and moral standards. Custom must not be contrary to public order and good customs, which effectively curbs the unrestricted entry of customs that are not in the public interest into the civil law, provides a filter for the customary law, and at the same time provides a channel for the customs that are beneficial to the society to enter the civil law. [8] The application of trading habits based on good customs can make trading habits conform to the legal sentiments of ordinary citizens, make economic activities compatible with ethics and morality, and prevent trading habits from becoming a tool for violating ethics and moral order, which is where the rationality of trading habits lies.
II. Rules for Determining Trading Customs
There are 12 articles in the contract section of the Civil Code that explicitly deal with transaction customs, and their application is also relatively extensive, including the method of commitment, the time when the contract is established, the loopholes in the supplementary contract, the interpretation of the contract, the determination of ancillary obligations, and the post-contractual obligations. Therefore, from the perspective of strengthening practicality, it is necessary to clarify the rules for determining trading habits.
The so-called trading habits refer to the common practices that are generally adopted by people in a certain industry or a certain type of trading relationship at a certain time and place, or the common practices in past transactions between specific parties. Trading habits can usually be divided into: general trading habits, that is, habits that are common throughout the country; region-specific trading habits, i.e., regional customs; trading habits of special industries; A habit formed by the parties having engaged in some kind of transaction for a long time. Article 7 of the Judicial Interpretation (II) of the Contract Law mainly stipulates the customs of special regions (industries) and the customs between the parties, which are also the types of transaction customs adopted by the parties in practice. This judicial interpretation basically follows the relevant provisions of the judicial interpretation, and at the same time absorbs the opinions of scholars, and adjusts the order of the two types of transaction customs, so as to give more prominence to the status of the customs between the parties.
(1) Habits between the parties
Paragraph 1, Item 1 of this Article adjusts the phrase "customary practice frequently used by both parties" as provided for in Article 7 of the Judicial Interpretation (II) of the Contract Law to "the customary practice between the parties in transaction activities": first, it is no longer limited to the parties in terms of subjectivity, but emphasizes that the practice is often adopted between the parties; Second, it is clear from the occasion that in trading activities, it is highlighted that trading habits mostly occur in commercial activities; The third is to revise the expression to "customary practice" to avoid falling into a circular interpretation due to the word "customary".
"Customary practice between parties in trading activities" generally refers to the common practice in a fixed trading relationship or in a specific trading circle. Contrary to what is commonly referred to as a trading practice, this type of practice is in fact a common practice between specific parties. In the absence of an express agreement, it should generally be understood that the parties will continue to follow the past practice. Therefore, in terms of filling contract loopholes, like transaction customs, such common practices can provide the court with a basis for seeking the agreement of the parties. In terms of specific understanding, we should start from the following two aspects: first, the actual performance between the parties usually directly indicates their true understanding of the meaning of the contract. If a certain practice is frequently adopted between the parties, it can be fairly considered that such a common practice constitutes a common basis for understanding and interpreting the expressions and acts of the parties, and should be recognized as a trade custom. Second, once a trading custom is established, the parties will make a commitment to fulfill their ancillary obligations and understand the contents of the contract out of trust in the trading custom. When there is such a trading habit, the counterparty has a trust interest in this trading habit. Therefore, the contract section of the Civil Code provides that such trust should also be protected in accordance with the principle of good faith.
In addition, the customary practice here generally refers to a "before" repeated practice, and if it occurs only once in the previous transaction of the parties, it is generally not appropriate to identify it as a trading custom. For example, Factory A is the supplier of Merchant B, and although the two parties have not expressly agreed in the contract, Factory A has provided "environmentally friendly" certificates to Merchant B in all supply processes. If Factory A abruptly interrupts the provision of the above proof during a supply in a lawsuit, causing Merchant B to immediately raise an objection, the usual practice before the supply can be used as evidence to prove the trading habits. On the other hand, if Factory A did not provide "environmentally friendly" certificates in the previous supply process, and Merchant B did not raise any objection after receiving the goods, and later Factory A improved its services and began to provide the above-mentioned certificates, it would be inappropriate for the people's court to determine that Factory A had breached the contract by failing to provide the certificates based on the trading habits formed later.
(2) Special regional (industry) customs
1. Objective and subjective elements
Paragraph 1, Item 2 of this Article follows the provisions of Article 7 of the Judicial Interpretation (II) of the Contract Law, which requires that the customs of special regions or industries shall meet two conditions: one is the objective element, that is, "it is usually adopted in the place where the transaction is conducted, or in a certain field or industry", which reflects the regional and industrial characteristics of the transaction customs; The other is the subjective element, i.e., "known or ought to have known to the counterparty at the time of entering into the contract". It can be seen that if a certain customary practice is only adopted in the place where the transaction is conducted, or in a certain field or industry, such a customary practice is not sufficient to be recognized as a trading custom. The determination of trade practice emphasizes that the customary practice is subjectively known or ought to have been known by the counterparty at the time of the conclusion of the contract, in other words, it cannot bind the other party who is unaware of the practice. Of course, this consideration is mainly based on the practical need to restrict trading customs, which are likely to have an unreasonable alienating effect on a party if they are directly applied without the consent of the parties without restriction, and exclude the reasonable interests and expectations of the party with a disadvantaged group in the transaction. At the same time, it also greatly increases the risk of judicial personnel taking advantage of the uncertainty of trading habits to make arbitrary judgments. The parties' knowledge of the trade custom forms the basis for the legitimacy of the trade custom to fill the loopholes in the contract.
2. The understanding of "knew or ought to have known".
From the perspective of objective elements, as long as a certain customary practice is regularly adopted in the place of the transaction or in a certain field or industry, it is easy to meet the conditions for being recognized as a trading custom, but because these practices are basically impossible to determine exclusively, the subjective element of "knowing or should have known" is very important for determining the customary practice as a trading custom. At the same time, it is also the basic basis for identifying a common custom as a trading habit.
It should be emphasized that this article continues the strict definition of subjective elements adopted in Article 7 of the Judicial Interpretation (II) of the Contract Law, and the requirement must be "known or should have known". This means that, first of all, the counterparty does not have a duty of care to understand and master the special trading habits. Even if a customary practice has been observed in a certain region, a certain field, or a certain industry without exception, the counterparty is still bound by the customary practice only if it "knew or should have known". Second, the counterparty's understanding of the transaction habit is limited to "knowing or should know", and cannot be strengthened into "consent and approval". As long as the counterparty knew or should have known of the practice, it could not exclude the application of the practice on the grounds of disagreement or approval. Finally, "knew or ought to have known" can be determined by means other than an express expression of intent. For example, if a party to a transaction informs the other party in writing at the time of signing the contract that the interpretation of the contract and the determination of ancillary obligations should adopt a certain customary practice, and the counterparty does not object to this, such a customary practice should be considered to be a trade custom. In short, clarifying this subjective element in substantive law is more conducive to the protection of freedom of contract, strengthens the protection of counterparts who do not understand local customs or lack experience in the industry, and also reflects the respect for the will of the parties and the requirements of private law autonomy.
3. Understanding of "at the time of conclusion of the contract".
From the perspective of temporal characteristics, trading habits should be the usual practices that the counterparty knew or should know "at the time of entering into the contract". In other words, supplementing the loopholes in a contract with trading customs can only be based on the customs that exist at the time of the contract dispute, and cannot be based on past or outdated customs. According to this rule, the counterparty may not claim ancillary obligations or interpret the terms of the contract on the basis of the usual practice of the counterparty after the conclusion of the contract, unless the "knowledge" of the counterparty is directly reflected in the parties' change to the content of the contract through consensus.
4. Understanding of "counterparty".
Since this judicial interpretation expressly stipulates that the "counterparty" knows or should know, it is not required that both or more parties have known or should have known a certain customary practice at the time of the conclusion of the contract. However, the party who knew or should have known at the time of the conclusion of the contract may not assert the trade custom against the counterparty who did not know and should not have known, but this does not prevent the party who did not know and should not have known the trade custom at the time of the conclusion of the contract. For example, if A and B enter into a contract and only A knows or should know about a certain trade custom, and with the performance of the contract, if A finds that the custom is used to interpret the contract in his favor, he cannot claim the trade custom under this article; However, if B finds that the customary practice is used to interpret the contract in his favor, he may assert the trade custom under this article. It can be found that such a provision is conducive to strengthening the protection of the inexperienced party and at the same time preventing the experienced party from evading its obligations under the customary trade.
3. The burden of proof of trading habits
In civil and commercial trials, the ascertainment of facts is the core, and the issue of bearing the burden of proof is the premise of ascertaining the facts. The burden of proof of trading custom depends on whether the trade custom is a question of law or fact. Some scholars believe that if the people's court uses custom in the sense of Article 142 of the Civil Code, and the function of transaction custom is to interpret and supplement the contract, then custom is still a matter of fact, as is the case in Germany and the United States. For example, Section 1-205 (Course of Dealing and Usage) of the Uniform Commercial Code of the United States defines a trade practice or method of dealing that is so commonly observed in a region, profession, or industry that it is reasonable to expect to be observed in the transaction in question. The existence and scope of such practice should be proved as facts...... Since it is a question of fact, the general rules of proof apply, and the burden of proof is on the party asserting the existence of trading customs. Article 7 of the Judicial Interpretation (II) of the Contract Law on the allocation of the burden of proof of transaction custom should still be upheld. Some scholars also believe that although trading customs have the force of law, they are not laws; Although it exists objectively, it is not evidence. Some scholars believe that the process of defining and identifying trading habits is not only a process of determining facts, but also accompanied by judges' value judgments on trading habits. Transaction habits are inseparable from the proof of the parties to make it clear, and the value judgment of the judge to justify it. In the practice of judicial adjudication in mainland China, there are many cases in which the court has ex-officio conducted evidence on transaction customs to adjudicate contract disputes. After research, we believe that "judges know the law" is no longer appropriate in modern society. In commercial trials, it would be unreasonable for judges to ascertain customs, especially those of a highly technical and industrial nature, and it would be more practical to stipulate that the burden of proof of industry practices and trade customs should be borne by the party making the claim. Therefore, paragraph 2 of this article follows the provisions of paragraph 2 of Article 7 of the Judicial Interpretation (II) of the Contract Law, follows the rule of "whoever asserts shall bear the burden of proof", and clarifies that "the party making the claim shall bear the burden of proof for transaction customs".
The content of the parties' burden of proof is usually determined in accordance with the specific requirements of the transaction customs. If the claim is based on the trade practice between the parties, the party making the claim should prove that the parties had formed the asserted practice through regular use in the trading activities prior to the dispute. If the claim is based on the trading customs of a special region or an industry, the party making the claim not only needs to prove the existence of the local custom or industry custom, but also needs to prove that the other party knew or should have known the custom at the time of entering into the contract, or adduced evidence that the other party had informed and explained the trade custom, otherwise, the claimant party should bear the adverse consequences of failing to prove that it could not compel the other party to accept the trade custom. There are generally six types of main evidence to prove the existence of trading habits or industry trading habits in special areas: first, the provisions of normative documents other than laws and regulations, such as the content of normative documents promulgated by administrative competent authorities and implemented within the jurisdiction; the second is to stipulate the content and industry standards in the compilation of autonomous norms within the industry; (3) the trading habits involving the region or industry recognized by the effective judgment or award; Fourth, evidence that two or more parties engaged in the same transaction in the same industry or region have recognized the trading custom; (5) evidence that one or both of the parties to the transaction have conducted the same kind of transaction with others in accordance with the transaction habits; Sixth, evidence of the existence of the trading habit by local industry associations, federations of industry and commerce, local chambers of commerce, market management and other relevant departments.
Of course, although this judicial interpretation has clearly provided for the allocation of the burden of proof for trading customs, it is not difficult to find that the judicial application of trading customs is initiated by the people's courts themselves under certain circumstances by observing the initiation mechanism of the application of trading customs by the mainland people's courts in the past. In this regard, some scholars believe that, from the perspective of legal interpretation, although paragraph 2 of this article stipulates that "the party making the claim shall bear the burden of proof for trading customs", it cannot be concluded that this provision blocks the way for the people's courts to invoke trading customs on their own, so the people's courts can directly cite the trade customs adjudication. On the premise of following the basic criterion of "whoever asserts the claim shall present evidence", the judge should take the initiative to use logical reasoning and the rules of daily life experience to conduct a comprehensive analysis and judgment of the evidence provided by the parties to prove the transaction habits, and determine the facts of the transaction. The parties do not need to provide evidence for well-known facts or trading habits that can be inferred from known facts and rules of daily life experience, and it is presumed that the other party knew and should have known about the trading customs. In summary, we believe that this line of thinking is desirable. As far as the essence of the transaction custom is concerned, the party asserting the claim shall submit evidence in accordance with the law; On the other hand, if the judge directly enforces the application of transaction customs, in a sense, it is equivalent to forcing the parties to enter into supplementary terms of the contract, which is contrary to the principle of freedom of contract. Considering that in a modern society with a highly developed Internet and a highly convenient collection and exchange of electronic information, some parties in a disadvantaged position are unable or inconvenient to obtain proof of the existence of transaction habits, the people's courts may collect evidence or ascertain it ex officio.
It should be noted that the evidentiary requirements that a party needs to meet to assert that a transaction custom is accepted by the people's court are usually described by the "standard of proof", and in the practice of commercial trials in mainland China, the evidence adduced by the parties is generally required to reach a high degree of certainty. From the perspective of judicial practice, in most cases, the grasp of the standard of high probability still needs to rely on the subjective judgment of judges, that is, judges are required to judge the existence and magnitude of the probative force of evidence in accordance with conscience, reason, empirical rules, and logical reasoning.
[Practical issues]
There is no doubt that trading habits shall not violate the mandatory provisions of laws and administrative regulations, and shall not violate public order and good customs, as clearly stipulated in this judicial interpretation, but the question is how to deal with trading habits that are inconsistent with arbitrary norms?
The so-called arbitrary norm refers to the norm that the parties may exclude from applying by agreement. The arbitrariness norm allows the parties to freely express their intentions within the limits of the law, resulting in legal consequences. For example, articles such as Article 483 of the Civil Code that contain "otherwise agreed" or other similar wording are arbitrary norms. Among them, the law also directly allows the parties to exclude or change the content of the law through agreement, so as to make up for the deficiencies of the law, especially in the case that the parties have not considered or intentionally omitted to supplement the parties' intentions, which is usually called supplementary arbitrary norms. Therefore, if the parties agree to determine the rights and obligations of the parties in accordance with the trade customs, or if the trade customs can indicate that the parties have "agreed otherwise", the validity of the parties' agreement should be affirmed based on the principle of autonomy of will, and the trade customs shall take precedence over the arbitrary norms. It should be noted that if a certain trading custom is only a practice that is commonly used in the place where the transaction is conducted, or in a certain field or industry, and the parties are not aware of it, the arbitrary norm should still take precedence over such a customary practice.