Court Orders Company to Pay CNY 58,120 for Sand Supply
A court in Eastern China City has ordered a construction company to pay CNY 58,120 to a sand supplier, holding that an individual who purchased the sand on behalf of the project had apparent authority to bind the company. The dispute arose from an unpaid debt for yellow sand delivered to a commercial and residential complex. The court ruled that the company, which had allowed an individual to use its name for construction, must bear responsibility for the debt.
The plaintiff, Ms. Wang, a farmer from Eastern China City, supplied yellow sand to a construction project known as the Dongyue Temple Comprehensive Service Area. The project was developed by a real estate company’s project department, but the actual construction was carried out by an individual, Mr. Zhang, who used the name of a construction company (Rui Construction Co.) under a formal arrangement. Ms. Wang began delivering sand in June 2009 after negotiating with Mr. Zhang through a site supervisor. On February 13, 2010, Mr. Zhang issued a handwritten IOU for CNY 64,120, but only paid CNY 6,000, leaving a balance of CNY 58,120. Ms. Wang sued Rui Construction Co., Mr. Zhang, and the project department, seeking joint liability.
During the hearing, Ms. Wang submitted the IOU, five delivery receipts signed by Mr. Zhang and other site workers, and documents showing the contractual relationship between the project department and Rui Construction Co. Rui Construction Co. argued that Mr. Zhang was not its employee and that the debt was personal. Mr. Zhang admitted the debt but claimed it was his own obligation. The project department denied responsibility, stating that Mr. Zhang acted independently. The court examined all evidence and found that the construction company had allowed Mr. Zhang to use its name under a subcontracting agreement, and that the sand was used entirely for the project.
The court found that Ms. Wang had reasonable grounds to believe Mr. Zhang represented Rui Construction Co. when purchasing the sand. The evidence showed that Mr. Zhang was the actual site manager, that the sand was delivered to the project site, and that company signage was present. The court applied the doctrine of apparent authority (table authority) under Chinese contract law, which holds that a principal is liable when a third party reasonably believes an agent has authority. The court concluded that Rui Construction Co. was the contracting party and must pay the outstanding amount.
According to relevant law, specifically Article 49 of the Contract Law, an act without actual authority can still bind the principal if the counterparty has reason to trust the agent’s authority. The court reasoned that Ms. Wang’s reliance on Mr. Zhang’s position as the person in charge of site operations was justified. The court also noted that allowing an unlicensed individual to use a company’s name to undertake construction creates legal risks for the company. The court rejected the company’s defense that the debt was solely Mr. Zhang’s personal liability.
The judgment clarifies that companies which permit individuals to operate under their name may be held liable for debts incurred in the course of the project. In this case, the court ordered Rui Construction Co. to pay the full amount within seven days, while exonerating both Mr. Zhang and the project department. The decision underscores the importance for construction companies to carefully supervise their subcontractors and to ensure that all purchases are properly authorized. Companies should be aware that apparent authority can create binding obligations even when no formal employment exists.
Disclaimer: This article is for informational purposes only and does not constitute legal advice.