CNY 92,800 Deposit Dispute in Supply Contract

A dispute over a deposit payment of CNY 92,800 for electronic components has been resolved by a court in Eastern China City. The plaintiff, an electrical equipment company, sued the defendant, a supplier based in Southern China City, for failing to deliver goods after receiving a partial prepayment. The court examined the contract terms, the parties’ conduct, and the legal effect of an alleged cancellation. The judgment clarifies the obligations of buyers and sellers under Chinese contract law when a deposit is paid but goods are not shipped.

The plaintiff, a manufacturer of electrical products, placed an order with the defendant for 800 units of a specific surge protector model at a unit price of CNY 232. The written contract, signed on March 2, 2011, required the buyer to pay the full deposit before delivery and the seller to issue a VAT invoice. On March 3, the plaintiff transferred CNY 92,800 – exactly half of the total price – to the defendant. The next day, the defendant placed a corresponding order with its own supplier, a company in Southern China City that was the authorized distributor of the German OBO brand. The plaintiff later sent a fax stating that it was cancelling the order because its customer had placed it in error, and asked the defendant to hold the deposit for a future transaction. The defendant never shipped the 400 units that the deposit covered, but it did issue a VAT invoice for the full amount.

During the hearing, both parties submitted extensive documentary evidence. The plaintiff presented the contract, bank transfer receipt, VAT invoices, and a statement from its intended customer confirming that no goods were received. The defendant produced its own purchase contract with the distributor, proof of payment of CNY 108,000 to the distributor, and notices from the distributor about penalties for supply breaches. The defendant also introduced a criminal judgment showing that the plaintiff’s legal representative had been convicted of producing counterfeit OBO products in 2011. The court reviewed all evidence and heard testimony from the parties’ legal representatives. The defendant argued that the plaintiff unilaterally cancelled the contract and that the deposit should be treated as prepayment for future orders, not returned.

The court found that the contract was legally valid and binding. The plaintiff paid the deposit as required, but the defendant did not deliver any goods. The defendant claimed that the fax from the plaintiff amounted to a cancellation, but the court noted that the fax merely requested the deposit to be held for a later order – it did not expressly terminate the contract. The defendant’s failure to ship the goods after receiving the deposit was a breach of its primary obligation. The defendant’s argument that the plaintiff’s criminal conduct justified non-delivery was rejected because the criminal case occurred after the relevant period and did not affect the contract’s performance.

Under Chinese contract law, a seller who accepts a deposit but does not deliver the goods must return the deposit unless the buyer has clearly waived that right. The court held that the plaintiff’s fax did not constitute a clear and unconditional waiver of the right to demand delivery or a refund. The defendant’s claim that it suffered losses due to its own purchase contract with the distributor was not supported by sufficient evidence linking those losses to the plaintiff’s conduct. The defendant also failed to show that it had obtained the plaintiff’s consent to apply the deposit to future orders or to cover alleged damages.

The court ordered the defendant to repay the CNY 92,800 deposit to the plaintiff within ten days of the judgment. The court did not award any compensation to the defendant for its claimed losses, as the contract did not provide for liquidated damages and the defendant’s arguments about the plaintiff’s cancellation were not persuasive. This case highlights the importance of clear communication when a buyer seeks to change or cancel an order. Sellers should not unilaterally retain deposits without explicit agreement from the buyer, and buyers should ensure that any cancellation instructions are unambiguous. The ruling reinforces the principle that a deposit is tied to the specific contract and cannot be diverted to other purposes without mutual consent.

Disclaimer: This article is for informational purposes only and does not constitute legal advice.