Construction Dispute Over Unpaid Warranty Deposit: 162,301.86 RMB Central Air Conditioning Case

Construction Dispute Over Unpaid Warranty Deposit: 162,301.86 RMB Central Air Conditioning Case

Case Overview
This case involves a dispute between an air conditioning engineering company and a hotel company over unpaid warranty deposits for a central air conditioning installation project. The total contract price was 3,246,037.20 RMB, of which 162,301.86 RMB was retained as a warranty deposit. The key issue was whether the hotel company had properly paid part of this deposit to a former employee of the engineering company, and whether the engineering company had fulfilled its warranty obligations.

Case Background and Facts
Between October 2007 and May 2008, the hotel company hired the air conditioning engineering company to install a central air conditioning system. Multiple installation contracts were signed, with the total project cost set at 3,246,037.20 RMB. After project completion, the hotel company paid 3,083,735.34 RMB, leaving a balance of 162,301.86 RMB as a warranty deposit. The contracts specified that the warranty deposit would be settled within one month after the two-year quality warranty period expired. The engineering company agreed to provide free maintenance and repair services for the entire system for two years, with a three-year warranty on compressors. A Mr. Dai, who was the general manager of the engineering company at the time, was personally responsible for this project, handling invoices and payment transfers.

Court Proceedings and Evidence
The engineering company filed a lawsuit on September 29, 2010, seeking payment of the full warranty deposit of 162,301.86 RMB plus interest at 4.86% per year from June 16, 2008. The hotel company argued that it had already paid 100,000 RMB of the deposit to Mr. Dai by check in March 2010, following established business practices. The hotel company also claimed the engineering company failed to properly repair recurring compressor failures, requiring third-party repairs that should be deducted from the deposit. During the appeal, the hotel company submitted a witness statement claiming Mr. Dai agreed to deduct repair costs from the deposit. The appellate court rejected this evidence because the witness did not appear in court as required by law.

Court Findings and Judgment
The court found that Mr. Dai, as the former general manager of the engineering company, had consistently handled all aspects of the hotel companys project, including receiving payments. When Mr. Dai left the engineering company in June 2009, the engineering company failed to notify the hotel company. The hotel company continued to contact Mr. Dai for repairs, and he continued providing service. The court held that Mr. Dais acceptance of the 100,000 RMB check constituted apparent authority, making this payment valid against the engineering company. Regarding the remaining 62,301.86 RMB, the court ruled the warranty period had expired for most of the system, and the hotel company provided no evidence of third-party repair costs or filed a counterclaim. The court affirmed the lower courts decision: the hotel company must pay 62,301.86 RMB plus interest from June 16, 2010, at 4.86% annually, and the engineering company could not recover the 100,000 RMB already paid.

Key Legal Principles
The court applied the doctrine of apparent authority, holding that a principal may be bound by the acts of an apparent agent when the principal fails to notify third parties of the agents termination and the third party reasonably relies on the agents authority based on past dealings. The court also applied contract law principles requiring parties to perform contractual obligations in good faith, including timely settlement of warranty deposits after the warranty period expires, unless the other party proves damages requiring deduction.

Practical Insights
This case demonstrates the importance of formally notifying business partners when key employees leave the company, especially those with direct client relationships and payment-handling authority. Companies should establish clear protocols for client communications about personnel changes to avoid unauthorized payments to former employees. Additionally, parties claiming breach of warranty obligations should either file a counterclaim or present concrete evidence of repair costs to justify withholding warranty deposits.

Legal References
Contract Law of the Peoples Republic of China, Article 60 (Performance of Contractual Obligations), Article 107 (Liability for Breach of Contract), Article 109 (Payment of Monetary Obligations). Civil Procedure Law of the Peoples Republic of China, Article 153 (Appellate Review Standards), Article 158 (Effectiveness of Final Judgment).

Disclaimer
This article is for informational purposes only and does not constitute legal advice. Consult a qualified attorney for specific legal matters.