Court Orders Payment of CNY 126,914 for Custom Woven Belts
In a recent decision, a Chinese appellate court upheld a lower court ruling ordering a garment manufacturing company to pay CNY 126,914.39 for custom woven belts supplied by a textile company. The dispute arose when the supplier, Lianxing Textile Printing and Dyeing Company, sought payment for goods delivered in September and October 2010. The primary defendant, Longxing Garment Manufacturing Company, denied ordering the products, claiming a Hong Kong company was the actual buyer. The court rejected this defense and found Longxing liable for the amount plus overdue penalties.
The plaintiff, Lianxing Company, based in Southern China City, alleged that between September and October 2010, it manufactured woven belts at the request of Longxing Company, a garment maker in Central China City. The goods were delivered to Yingchang Garment Company in Eastern China City, where Longxing had arranged processing. Lianxing claimed the total processing fee was CNY 126,914.39, plus overdue penalties of CNY 8,102.21 calculated from November 1, 2010. Lianxing sued both Longxing and Yingchang for joint payment. Longxing denied any contractual relationship, asserting that the real buyer was H&A Garments Factory Limited, a Hong Kong company that had commissioned Yingchang for processing. Yingchang confirmed that it only received and processed the goods for H&A, not for Longxing.
During the hearing, Lianxing submitted 17 sales product outbound forms dated September and October 2010. Most forms bore Longxing’s receipt stamp, while a few carried stamps from other companies, including a Guangzhou-based garment company and a Dongguan garment company. Some forms were stamped by Yingchang. Lianxing argued that all deliveries were made on Longxing’s instructions. Longxing introduced email evidence showing correspondence between Lianxing’s sales manager and H&A, along with a declaration from H&A stating that it ordered the materials directly from Lianxing’s Hong Kong affiliate. Lianxing challenged this evidence, noting that Longxing’s legal representative was also a shareholder of H&A, raising a conflict of interest.
The court found that the evidence overwhelmingly supported Lianxing’s claims. The majority of the outbound forms bore Longxing’s official stamp, and the few forms with other companies’ stamps were consistent with earlier transactions between the parties. The court noted that one signature, Ms. Liu, appeared on both Longxing-stamped and Yingchang-stamped forms, linking the deliveries. The court rejected Longxing’s argument that it was merely a recipient for H&A, because Longxing could not produce any written contract with H&A or demonstrate that it had informed Lianxing of any agency relationship. The court held that Longxing had failed to prove its defense.
The court’s legal reasoning centered on the principle of contract formation through conduct. Although no written agreement existed, the delivery notes, payment demands, and partial acceptance by Longxing established a binding sales contract under Chinese contract law. The court determined that Yingchang was not a buyer but a mere consignee, and thus not liable for payment. The court also addressed the penalty clause, calculating overdue interest at a daily rate of 0.021% from November 1, 2010, as requested by Lianxing. The court concluded that Longxing must pay both the principal and the penalties, with ongoing interest until full settlement.
This case underscores the importance of clear documentation in commercial transactions. Companies should ensure that delivery receipts accurately reflect the contracting parties and that any third-party involvement is explicitly agreed in writing. The judgment also highlights that denial of an order without credible evidence will not succeed, especially when delivery records and signatures show a consistent pattern. Businesses engaged in cross-entity manufacturing should maintain formal contracts to avoid disputes over liability.
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