Post Termination Asset Inspection and Tooling Clearance Verification Procedures
Verification of foreign-owned tooling clearance requires hard-stamped Chinese bailment marks, notarized site audits, and structured financial set-offs.
Prc Civil Code Article 888
Meaning
This statutory provision in Chinese civil law defines the legal relationship, duties, and liabilities of parties involved in a bailment contract, where one party stores property for another. Under prc civil code article 888, a bailment is established when the bailee takes custody of the bailor’s property and must return it upon the completion of the custody period. This article applies to all storage, warehousing, and tooling custody agreements in Chinese manufacturing operations.
It establishes that the bailment is a contract of custody, and the bailee must exercise reasonable care to protect the property from damage or loss. The statutory definition stops applying if the contract is deemed a lease or a sales contract, where the possession and ownership rights are transferred under different legal principles.
Contractual Duty
The execution of the bailment contract under this article begins when the bailee receives physical possession of the property from the bailor. The bailee is required to inspect the property and report any defects to the bailor immediately. During the custody period, the bailee must store the property in a safe and suitable environment, following any specific instructions provided by the bailor.
The bailee is prohibited from using the property or allowing third parties to use it without the explicit consent of the bailor. If the property is damaged or lost due to the bailee’s negligence, the bailee must compensate the bailor for the loss. Upon the expiration of the custody period or upon the demand of the bailor, the bailee must return the property in its original condition, along with any accrued fruits or benefits.
Statutory Boundary
The application of this article is subject to specific limits regarding the bailee’s liability and the right to retain the property. If the bailment is unpaid, the bailee is only liable for damage or loss caused by gross negligence or intentional misconduct, whereas a paid bailee is held to a higher standard of reasonable care. Furthermore, the bailee may have a right of lien under the PRC Civil Code if the bailor fails to pay the agreed custody fees or related expenses.
In such cases, the bailee can refuse to return the property until the debt is satisfied, provided the lien is exercised in accordance with the law. This right of lien is a major point of contention in disputes between foreign buyers and local manufacturers, where the manufacturer may claim unpaid production fees to justify holding the buyer’s molds.
Operational Implication
Structuring a tooling or custody agreement under this statutory provision allows foreign buyers to protect their assets from unauthorized use and detention by local suppliers. The buyer must ensure that the contract is clearly drafted as a bailment agreement under this article, specifying the paid nature of the custody to enforce the higher standard of care. The contract should also include detailed provisions on the return of the tooling, including penalties for delays or unauthorized use.
This clear contractual framework reduces the risk of the supplier claiming a lien over the molds for unrelated disputes. The buyer can use the provisions of this article to demand the immediate return of their assets through the local court or administrative authorities. This legal protection is essential for maintaining control over proprietary manufacturing technology.