Construction Company Liable for Unpaid Material Supplies in Eastern China Contract Dispute

Construction Company Liable for Unpaid Material Supplies in Eastern China Contract Dispute

CASE OVERVIEW
A Chinese civil court in Eastern China ordered a construction company to pay 58,089 RMB plus interest for unpaid building materials. The court ruled that a project manager’s actions constituted an employment-related act, binding the company. The case clarifies vicarious liability in construction supply contracts.

CASE BACKGROUND AND FACTS
In 2007, Zhejiang Ningteng Construction Company (Ningteng Company) undertook a residential project called Meiyuan Community in Eastern China. The company assigned Mr. Le Wenrong as the internal contractor and technical director for the project. During construction, Mr. Le purchased stone adhesive, interface agent, and decorative lines from plaintiff Mr. Chen Defa. The total value of the materials was 58,089 RMB.

On December 3, 2008, Mr. Le issued a settlement note confirming the amount due. Despite repeated requests, neither Mr. Le nor Ningteng Company paid the outstanding sum. Mr. Chen filed a lawsuit on November 25, 2010, seeking joint and several liability against both Ningteng Company and Mr. Le for the unpaid货款 plus interest from the date of filing.

COURT PROCEEDINGS AND EVIDENCE
The case was heard under summary procedure on December 24, 2010. Mr. Chen appeared with his attorney. Ningteng Company appeared with its legal representative. Mr. Le failed to appear despite proper service.

Mr. Chen submitted three categories of evidence. First, a prior court judgment and business registration documents showing Ningteng Company (formerly Dongcheng Company) was the contractor for the Meiyuan Community project and that Mr. Le was its internal contractor and technical director. Second, a detailed settlement note dated December 3, 2008, listing specific materials and amounts, signed by Mr. Le as project department representative. Third, 16 delivery receipts and one accounting record showing materials delivered to the project site.

Ningteng Company argued there was no direct contractual relationship with Mr. Chen. It claimed Mr. Le was not an employee and lacked authority to bind the company. The company also challenged the authenticity of the settlement note and delivery receipts.

The court rejected Ningteng Company’s objections. It found the prior judgment already established Mr. Le’s role as internal contractor and technical director. The delivery receipts were signed by project site workers Cai Hengxian and Ni Zhijiang. Since Ningteng Company did not deny their employment, the court presumed the materials were used for the project. The company failed to provide contrary evidence.

COURT FINDINGS AND JUDGMENT
The court found that although no written contract existed between Mr. Chen and Ningteng Company, the evidence proved the materials were delivered to and used in the company’s project. Mr. Le’s settlement and signing of the note were employment-related acts performed within the scope of his duties. Ningteng Company bore responsibility for these actions.

The court ordered Ningteng Company to pay 58,089 RMB plus interest calculated from November 25, 2010 at the benchmark loan rate set by the People’s Bank of China until the date of actual payment. The court dismissed Mr. Chen’s claim against Mr. Le personally, finding no legal basis for joint liability. Ningteng Company was also ordered to bear half of the litigation costs.

KEY LEGAL PRINCIPLES
This case applies General Principles of Civil Law Article 43, which holds legal persons liable for the operational activities of their representatives and employees. Contract Law Articles 107 and 159 establish liability for breach of contract and the buyer’s obligation to pay the price. Civil Procedure Law Article 130 permits default judgment when a defendant fails to appear without justification.

The key principle is that an internal contractor’s procurement of materials for a company project constitutes an employment-related act, binding the company even without a formal written contract. The burden shifts to the company to disprove that materials were used for its project.

PRACTICAL INSIGHTS
Construction companies should maintain clear internal controls over material procurement. Allowing project managers or internal contractors to place orders without written authority creates liability risk. Suppliers should document deliveries with signed receipts and confirm the purchasing party’s identity. In this case, the supplier benefited from evidence showing the materials went to a specific project site. Companies facing such claims must present evidence that materials were not used for their project or were procured without authority.

LEGAL REFERENCES
General Principles of Civil Law of the People’s Republic of China, Article 43
Contract Law of the People’s Republic of China, Articles 107 and 159
Civil Procedure Law of the People’s Republic of China (2007 Revision), Article 130

DISCLAIMER
This article is for informational purposes only and does not constitute legal advice. Laws and court interpretations may vary by jurisdiction. Readers should consult a qualified attorney for advice on specific legal matters.