CNY 226,265 Awarded in Steel Purchase Dispute
The Central China City People’s Court recently ruled in a commercial dispute between a building materials supplier and a construction company over unpaid steel deliveries. The court found the defendant company liable for payment of CNY 226,265 plus interest, rejecting its argument that the transaction was a personal matter involving a former employee. The case highlights how electronic communications and customary dealing can establish contract formation under Chinese law.
The plaintiff, a building materials company represented by Mr. Chen, alleged that on August 8, 2011, the defendant’s business manager Mr. He sent a text message to the plaintiff’s legal representative ordering cold-rolled ribbed steel bars. The message specified that two trucks would be sent to the plaintiff’s warehouse for pick-up. On the same day, the defendant’s employee Mr. Yi arrived at the plaintiff’s premises with a photocopy of Mr. He’s identity card. The plaintiff delivered goods worth CNY 226,265, and Mr. Yi signed a delivery note and issued an IOU indicating the defendant as the debtor. The plaintiff claimed previous dealings with the defendant had always been paid promptly, but this time the defendant refused payment, stating the matter was a personal transaction by Mr. Yi.
During the hearing, the plaintiff presented notarized records of the SMS exchange, the original delivery note, and the IOU signed by Mr. Yi. The defendant argued that the SMS was not an official order because it came from Mr. He’s personal phone, that the IOU bore only the handwritten word “Xianhua” without a company seal, and that the identity card copy lacked any company stamp. The third party, Mr. Yi, testified that he had an off-the-books relationship with the plaintiff, had used Mr. He’s phone to send the order himself, and that the goods had quality problems. The court examined the evidence and found the plaintiff’s documentary proof consistent and credible.
The court held that a binding sales contract was formed between the plaintiff and the defendant. The SMS originated from the defendant’s manager’s phone, and Mr. Yi took delivery on the same day. Although the defendant claimed Mr. Yi was no longer its employee at the time of delivery, the defendant provided no evidence to support this assertion. Given the prior business dealings between the parties, the court found that the plaintiff reasonably believed Mr. Yi was acting on behalf of the defendant. The IOU, even without a corporate seal, was sufficient in combination with the delivery note and the SMS chain to establish the defendant’s liability.
Key legal points emerged from the court’s reasoning. First, the transaction reflected apparent authority: the defendant’s manager initiated the order via a known communication channel, and the defendant failed to rebut the presumption that Mr. Yi remained an employee. Second, the burden of proof on the employment status rested with the defendant, which it did not discharge. Third, while Mr. Yi raised a quality defence, the defendant did not file a counterclaim, so the court declined to address it. The court applied Articles 107 and 159 of the Contract Law, holding that the defendant’s non-payment constituted a breach of contract.
The court ordered the defendant to pay the full principal of CNY 226,265 plus interest calculated from August 8, 2011 at the benchmark bank lending rate until full payment. The defendant also bore the CNY 2,458 case acceptance fee. The judgment implicitly allows the defendant to seek recourse from Mr. Yi for any internal liability. For businesses, this case underscores the importance of maintaining clear internal authorization procedures and promptly disclaiming unauthorized transactions to avoid being bound by employee conduct.
Disclaimer: This article is for informational purposes only and does not constitute legal advice.