Maggie Wu (吳詩敏)[1] and Tzu-Ching Lin (林子靖)[2]
In the case discussed throughout this series, the trial and appellate courts reached nearly opposite conclusions on the same contract and the same shipment of goods. This article compares the two courts’ views on the effect of the supplementary agreement, the duty to inspect, the basis of the claim, and the applicable time limits. It then turns to a question on which the case law is divided: whether a buyer that did not promptly inspect the goods and give notice may still rely on incomplete performance.
The two courts compared
The system integrator purchased indoor UAVs and ground control stations from the supplier for NT$2.6 million. The National Chung-Shan Institute of Science and Technology (NCSIST) rejected the goods on several grounds, including that the motor and the flight control board were of PRC origin. NCSIST then rescinded the relevant portion of its contract with the integrator and imposed penalties and delay damages totaling NT$1,296,306, and litigation followed. The trial court decision is Taiwan Taoyuan District Court Civil Judgment 110-Su-Zi-608, and the appellate decision, now final, is Taiwan High Court Civil Judgment 113-Shang-Zi-66. Although the two courts considered the same contract and the same goods, they reached nearly opposite conclusions. Table 1 summarizes the issues and each court’s view.[3]
Table 1 The trial and appellate courts compared
| Issue | Trial court (Taoyuan District Court 110-Su-Zi-608) | Appellate court* (Taiwan High Court 113-Shang-Zi-66) |
| Effect of the supplementary agreement | At most an agreement on the deadline for performance testing and on which party bears the penalties for missing it; not evidence that the supplier agreed to acceptance under NCSIST’s standard | The supplementary agreement expressly incorporated the terms of the NCSIST procurement contract into the contract at issue, and the supplier is bound by them |
| Responsibility for inspection | The integrator was required to inspect the goods itself and could not rely on a third party, NCSIST, to do so on its behalf | Before and after the contract was signed, the integrator repeatedly stated that components of PRC origin were prohibited and sent NCSIST’s acceptance criteria table; the supplier must be deemed to have known the requirements |
| Basis of claim | Warranty against defects (物之瑕疵擔保) | Incomplete performance (不完全給付) resulting in impossibility of performance |
| Time limits | Notice given on July 3, 2020; rescission not until April 29, 2021, after the six-month period under Civil Code Article 365 had expired | The integrator exercised rights under the provisions on breach of obligation, so Civil Code Articles 356 and 365 do not apply |
| Outcome | The integrator must pay the NT$2.6 million purchase price; its counterclaim is dismissed | The integrator is not required to pay; the supplier must pay the integrator NT$1,296,306 plus interest |
* The Supreme Court dismissed the supplier’s further appeal on procedural grounds.[4]
Trial court: the country-of-origin requirement never became part of the contract
The trial court held that the rights and obligations under the parties’ contract were independent of those under the integrator’s contract with NCSIST. Under the principle of privity of contract (債之相對性), the product’s failure to pass NCSIST’s acceptance did not in itself give rise to a presumption that the goods delivered by the supplier were defective. As for the supplementary agreement signed after delivery, which provided that NCSIST’s procurement contract terms “shall be deemed effective under this supplementary agreement,” the court treated it as, at most, an agreement on the deadline for performance testing and on which party would bear the penalties for missing that deadline. In the court’s view, the agreement did not establish that the supplier had agreed to acceptance under NCSIST’s standard.
On the duty to inspect, the integrator’s employee testified that, before NCSIST discovered the problem, the integrator had not opened the board or the casing and was unaware that the hardware bore a PRC manufacturer’s markings. The court therefore held that the integrator was required to inspect the goods for defects itself “… and not rely on a third party, NCSIST, to carry out the inspection in its stead, still less allow the standard in its contract with that third party to determine whether the goods delivered under the contract at issue were defective …”.
The court also found that the integrator notified the supplier of NCSIST’s rejection on July 3, 2020, but did not send its notice of rescission until April 29, 2021, after the six-month period under Civil Code Article 365 had expired. The integrator argued that the supplier’s issuance of a certificate of origin amounted to intentional concealment of the defect, but the court held that this argument did not affect its conclusion that the rescission was untimely.
On appeal: the supplementary agreement incorporated NCSIST’s requirements
The High Court held that the supplementary agreement “… expressly provided that the content of the NCSIST procurement contract be treated as part of the content of the contract at issue …”. The court also found that, before and after the contract was signed, the integrator’s staff had repeatedly stated in LINE group chats and emails that components of PRC origin were prohibited and had sent NCSIST’s acceptance criteria table. The supplier must therefore be deemed to have known that the products had to meet those requirements.
The supplier delivered products containing components of PRC origin and did not correct them after notice. NCSIST then rescinded its contract, and the integrator could no longer deliver to NCSIST. The court concluded that the supplier’s performance had become impossible for reasons for which the supplier was responsible. The integrator was therefore entitled to rescind under Civil Code Articles 227, paragraph 1; 226, paragraph 1; and 256, and to claim damages under Article 227, paragraph 1, which incorporates Article 226, paragraph 1.
On the time limits, the High Court held that the integrator was exercising rights under the provisions on breach of obligation, rather than a right of rescission under the warranty against defects, and was therefore not subject to Civil Code Articles 356 and 365. The court cited Supreme Court Civil Judgments 91-Tai-Shang-Zi-1588 and 92-Tai-Shang-Zi-882.[5]
A related question: may a buyer that did not promptly inspect the goods still rely on incomplete performance?
Courts are divided on whether a buyer that has not fulfilled its duty under Civil Code Article 356 to inspect the goods and give notice may still rely on the provisions on incomplete performance. Supreme Court Civil Judgment 87-Tai-Shang-Zi-2668 takes the view that it may: “… where the buyer asserts that the seller is liable for breach in the form of incomplete performance and claims damages on that basis, Article 356 of the Civil Code should not apply …”. Under that view, a buyer that did not promptly inspect the goods and give notice may still claim damages for incomplete performance.
Taiwan High Court Civil Judgment 97-Shang-Zi-1031, now final, takes the opposite view. It reasons that the “deemed acceptance” under Civil Code Article 356 carries with it a legal fiction that the buyer has declared the goods to conform to the agreed quality: “… since the buyer is deemed to have accepted the thing it received, the seller has thereby performed in accordance with the terms of the obligation …”. Under that view, a buyer that did not promptly inspect the goods and give notice also cannot later exercise rights under the provisions on incomplete performance. The buyer in that case had resold in-car audio-visual navigation units to a downstream customer and pursued its supplier only after the customer returned the goods, a position similar to that of the system integrator in the case discussed in this series.[6]
Conclusion
The different outcomes reached by the two courts stem from their differing interpretations of the supplementary agreement and from the choice of claim. The High Court’s view that Civil Code Articles 356 and 365 do not apply cannot yet be regarded as settled, because the Supreme Court disposed of the appeal by procedural ruling without reviewing the merits. Given that courts are also divided on whether a buyer that did not promptly inspect the goods and give notice may rely on incomplete performance, a buyer would be well advised not to rely on a single basis of claim.
The next article in this series considers whether a seller can avoid liability by attributing an error to an upstream supplier’s shipment, and whether the country-of-origin requirement became part of the contract. It also outlines steps a buyer should consider in drafting and performance.
[1] Maggie Wu (吳詩敏) is the Managing Partner of Stellex Law Firm (有澤法律事務所). LL.M., Soochow University; LL.M., Indiana University Robert H. McKinney School of Law.
[2] Tzu-Ching Lin (林子靖) is the Managing Partner of Pan & Lin, Attorneys-at-Law (則誠法律事務所). LL.M., Graduate Institute of Law and Interdisciplinary Studies, National Chengchi University; LL.M. in Environmental and Energy Law, Georgetown University Law Center.
[3] The supplier’s further appeal was dismissed by Supreme Court Civil Ruling 115-Tai-Shang-Zi-424 (June 10, 2026), and the judgment became final.
[4] The closing passage of Supreme Court Civil Ruling 115-Tai-Shang-Zi-424 states (the appellant is the supplier and the appellee the system integrator): “… the contract at issue is a contract for consideration, and its characterization is a matter of applying the law; whether the appellee’s exercise of the right of rescission is subject to a preclusive period was argued by both parties, so the appellant’s complaint that the lower court’s finding violated the party presentation principle is mistaken …”. Note, however, that the ruling dismissed the appeal on procedural grounds and did not review the High Court’s legal reasoning on the merits. Whether the Supreme Court can be said to have endorsed that reasoning therefore remains an open question.
[5] For completeness: Supreme Court Civil Judgments 91-Tai-Shang-Zi-1588 and 92-Tai-Shang-Zi-882 address different questions. The former holds that Civil Code Article 365 does not apply to rescission for incomplete performance; the latter holds that Article 356 does not apply to a damages claim for incomplete performance. The combined proposition that neither article applies is the High Court’s own synthesis in 113-Shang-Zi-66 after citing both.
[6] Taiwan High Court Civil Judgment 97-Shang-Zi-1031 (Mar. 31, 2009), appeal dismissed, Supreme Court Civil Ruling 98-Tai-Shang-Zi-1269 (July 16, 2009). The Supreme Court dismissed the appeal on procedural grounds and expressed no view on the merits.