Maggie Wu (吳詩敏)[1] and Tzu-Ching Lin (林子靖)[2]

Beyond the choice of claim, an origin dispute raises two further questions: whether a seller can avoid liability by attributing the problem to an upstream supplier’s shipping error, and whether the country-of-origin requirement became part of the contract at all. This article reviews the relevant case law, sets out four considerations for buyers in drafting and performance, and identifies situations that call for review before a dispute proceeds further.

Two open questions

The previous two articles explained the differences between the warranty against defects (物之瑕疵擔保) and incomplete performance (不完全給付), and how the two courts in the case discussed in this series reached different conclusions. Beyond the choice of claim, two further questions in origin disputes merit attention.[3]

(1) Can a seller avoid liability by attributing the problem to an upstream shipping error?

Taiwan Taipei District Court Civil Judgment 113-Zhong-Su-Zi-740 concerned a Ministry of National Defense contract, with a total value of NT$255,784,250, for the outsourced maintenance of half-ton reconnaissance (command) vehicles. The contract prohibited the supply of goods of PRC origin. The contractor delivered original-manufacturer parts purchased from a U.S. supplier. Customs determined that some of the parts were of PRC origin, and on some of them the “MADE IN CHINA” marking on the outer packaging had been obscured with black ink. The contractor argued that the U.S. supplier had mixed products of PRC origin into the shipment without its knowledge.

Applying Civil Code Article 224, the court held that the U.S. supplier was the contractor’s agent or a person the contractor used to perform its obligation, and that the contractor therefore “… must bear the same liability as for its own intent or negligence …”. The Ministry had terminated the contract on that basis and retained NT$9,396,000 of the contractor’s NT$12 million performance bond, or 78.3 percent, corresponding to the terminated share of the contract value. The court found no error in that decision.[4]

Under this reasoning, a seller is unlikely to succeed in arguing that an upstream supplier’s shipping error relieves it of liability. However, this is a first-instance judgment. The contractor has filed an appeal, and as of this writing no appellate decision has been published. Whether the judgment will be upheld remains to be seen.

(2) Did the country-of-origin requirement become part of the contract?

In Taiwan High Court, Taichung Branch, Civil Judgment 111-Shang-Zi-525, a county government revoked its acceptance of gifts it had purchased, accepted them at a reduced price, and imposed penalties, on the ground that the gifts originated in the PRC in violation of the instructions to bidders. The court found that the relevant box in the instructions to bidders had been left unchecked by mistake, that the county had known from the outset that the contractor was supplying goods made in the PRC and had nevertheless awarded the contract, and that the county had approved outer packaging marked “Place of origin: mainland China.” The court therefore concluded that the parties had not prohibited goods of PRC origin when they entered into the contract, and that the contractor was not in breach.[5]

Although the facts differ from those of the case discussed in this series, the two courts’ readings of the supplementary agreement show that the central issue is the same: whether the country-of-origin requirement actually became part of the parties’ agreement. Whether the buyer relies on the warranty or on incomplete performance, it must first meet its burden of proof on that issue.

Recommendations for drafting and performance

Based on the foregoing analysis, a buyer seeking to hold its upstream supplier liable for nonconforming origin should consider the following four points:

1. Plead both claims. The warranty against defects and incomplete performance are separate causes of action, and the court will examine the statutory elements by reference to the legal relationship the party asserts. A buyer that pleads only the warranty risks a finding that the six-month period has expired; pleading both claims is the more prudent approach.[6]
2. Preserve records of communications. The final High Court judgment discussed in this series found the supplier responsible largely on the basis of records showing that the system integrator had repeatedly stated that components of PRC origin were prohibited and had sent the acceptance standards. Such records should be kept throughout contract formation and performance, as it is considerably more difficult to assemble the evidence after the fact.
3. Inspect the goods on receipt and give notice. Because courts are divided on whether the duty to inspect and give notice affects a claim for incomplete performance, a buyer should, on receipt, check the markings and origin of the main components, either itself or through a third party, rather than rely entirely on the end customer’s acceptance. If a problem is identified, the buyer should notify the seller in writing, bearing in mind the six-month period under Civil Code Article 365.
4. Make origin a warranted quality. Under Civil Code Article 360, if the goods lack a quality warranted by the seller, the buyer may claim damages for nonperformance. If the contract expressly provides that the seller warrants that the product and its key components are not manufactured in the PRC, the buyer may be able to recover damages under that article without proving that the seller was at fault. If the seller intentionally concealed the defect, the buyer may likewise claim damages under the second clause of Article 360, and under Article 365, paragraph 2, the six-month period does not apply to rescission or price reduction, although the five-year period from delivery still applies. The Civil Code does not specify whether the time limits in Article 365 also apply to a damages claim under Article 360, and the issue is unsettled; at least one recent decision has held that they do not.[7] Buyers should nonetheless assert their claims promptly.

Situations that warrant review

If any of the following applies, the basis of claim and the applicable time limits should be reviewed before proceeding further:

1. The end customer has issued a notice of rejection or penalties, but it is unclear when the six-month period under Civil Code Article 365 begins to run.
2. A problem with upstream components has come to light more than six months after delivery, and it is necessary to determine whether any other basis of claim remains available.
3. The goods were inspected only externally on receipt, without being opened, creating a risk that the buyer will be deemed to have accepted them.
4. An upstream contract is being drafted to make origin a “warranted quality” under Civil Code Article 360, but the wording of the clause has not been finalized.
5. The upstream supplier contends that the problem lies with its own supplier’s shipment rather than with itself, and that defense needs to be assessed.

Conclusion

An origin dispute may involve both the warranty against defects and incomplete performance, which differ in their elements, time limits, and legal effects. Those differences largely account for the different results reached by the two courts in the case discussed in this series. In practical terms, a buyer should state the country-of-origin requirement expressly when drafting the contract and preserve the relevant records through performance and acceptance, so that it is in a position to enforce its rights later. The choice of claim and the applicable time limit will often determine whether a particular loss can be recovered. Because contract language and communications vary from case to case, no single approach will be appropriate in every situation.

A future article will consider what conformity requires when tender documents are framed in terms of function or effectiveness. Article 26, paragraph 1 of the Government Procurement Act requires tender documents for procurement at or above the publication threshold (公告金額) to be prepared in terms of function or effectiveness; the article will examine how that requirement can be reconciled with item-by-item comparison against detailed specifications at acceptance.

[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] Taiwan High Court Civil Judgment 113-Shang-Zi-66 (Oct. 29, 2025), appeal dismissed, Supreme Court Civil Ruling 115-Tai-Shang-Zi-424 (June 10, 2026).

[4] Taiwan Taipei District Court Civil Judgment 113-Zhong-Su-Zi-740 (July 24, 2025).

[5] Taiwan High Court, Taichung Branch, Civil Judgment 111-Shang-Zi-525 (Dec. 20, 2022).

[6] In the case discussed in this series (Taiwan High Court Civil Judgment 113-Shang-Zi-66, now final), the system integrator added Civil Code Articles 360, 495, paragraph 1, and 227, paragraph 2 as additional bases of claim on appeal, pleaded in the alternative to its original claim. That is an example of this approach.

[7] Taiwan Taichung District Court Civil Judgment 114-Zhong-Su-Zi-11 (Mar. 6, 2026).