The Contract Law of PRC which was applied on Oct. 1st,1999 regulated rules of contract interpretation. Besides that, scholar’s theory and judicial practice supplemented the rules as necessary parts which consist of a thorough system of contract interpretation.
Ⅰ.According to the Contract Law of PRC and law theory, hereinafter are rules of contract interpretation: ⅰ.Semantic Interpretation. By analyzing words and sentences in contracts, it would be closer to either party’s true intention.
ⅱ. System Interpretation. This is a way to confirm the real meaning of articles on the basis of their place in contracts and their relationship with other parts.
ⅲ.Purpose Interpretation. If words or articles in contracts had ambiguous meanings, they should be interpreted by purpose of contracts.
ⅳ.Practice Interpretation. This method means analyzing contracts in accordance with the commonly accepted , long-used and repeated practices of trade.
ⅴ. Good Faith Interpretation. Under this rule, Judge should analyze the articles of contract as a bona fide person.
ⅵ.History Interpretation. Before interpretation, the interpreter is supposed to review the process of negotiation, files, documents and contract drafts.
Ⅱ.Articles of laws about aforementioned rules:
The Contract Law of PRC.Art.125: With regard to disputes between parties to a contract over the understanding of any clause of the contract, the true meaning of such clause shall be determined according to the terms and expressions used in the contract, the relevant clauses of the contract, the purpose of the contract, trade practices and the principle of good faith.
Where two or more languages are adopted in the text of a contract and it is agreed that various versions are equally valid, it shall be presumed that the terms and expressions in the various versions have the same meaning. In the case that the terms and expressions used in different versions are inconsistent, they shall be interpreted according to the purpose of the contract.
Ⅲ.Specific rules of contract interpretation
ⅰ.Interpretation of Standard Clauses
The Contract Law of PRC.Art.41: If a dispute over the understanding of a standard term occurs, the term shall be interpreted based on general understanding. Where there are two or more interpretations, the interpretation unfavorable to the party providing the such term shall be preferred. Where the standard terms are inconsistent with non-standard terms, the latter shall be adopted.
The Contract Law of PRC.Art.61: Where, after a contract becomes effective, there is no agreement in the contract between the parties on the terms regarding quality, price or remuneration or place of performance, or such agreement is unclear, the parties may supplement the terms by agreement. In the case of failure to reach a supplementary agreement, the terms shall be determined in accordance with the relevant clauses of the contract or trade practices.
The Contract Law of PRC.Art.62: Where the relevant terms of a contract are unclear, and are unable to be determined in accordance with the provisions of Article 61 of the Law, the provisions below shall apply:
1. if the quality requirements are unclear, the national standards or trade standards shall apply; if there are no national standards or trade standards, general standards or specific standards in conformity with the purpose of the contract shall apply;
2. if the price or remuneration is unclear, the market price of the place of performance at the time of conclusion shall apply; if the government-fixed price or government-directed price shall be followed in accordance with the law, the provisions of the law shall apply;
3. if the place of performance is unclear, and the payment is in monetary terms, the performance shall be effected at the place of the party receiving the payment; if real property is to be delivered, the performance shall be effected at the place where the real property is situated; in the case of other subject matters, the performance shall be effected at the place of the party fulfilling the obligations;
4. if the time of performance is unclear, the obligor may at any time fulfill, and the obligee may also demand at any time the fulfillment of, the obligations, provided that a time limit for necessary preparation shall be given to the obligor;
5. if the method of performance is unclear, the method which is advantageous to realizing the purpose of the contract shall be adopted; and
6. if the party responsible for the expenses for performance is unclear, the expenses shall be borne by the party fulfilling the 4 obligations.
ⅲ.Judicial Rules of Contract Interpretation
1. Exclusion Rule. This is a common-law rule of contract interpretation which accepted by Chinese court. If parties of contract had listed specific matters rather than general things and had not use words like ‘similar’, they exclude unlisted items.
2. Specific Prior to General Rule. The more specific articles are, the more likely they reveal parties’ true intention.
3. Hand-written Prior to Printed Rule. Hand-written articles usually are determined by negotiation after both parties signed on a printed contract. They are regularly changes or supplements to the original contract.