Court Orders Payment of CNY 226,265 for Steel Bar Purchase

A court in Central China ruled that a building materials company must pay CNY 226,265 plus interest for steel bars delivered after a text message order from a manager. The decision highlights how businesses can be bound by employee actions within apparent authority, even without formal company seals on documents.

The plaintiff, Central China City Changlong Building Materials Co., Ltd., sued defendant Xianhua Industrial Co., Ltd. and a third party, Mr. Yi. On August 8, 2011, Mr. He, the defendant’s general manager, sent a text message from his mobile phone to Mr. Chen, the plaintiff’s legal representative, ordering cold-rolled ribbed steel bars. Later that day, Mr. Yi, a former employee of the defendant, appeared at the plaintiff’s premises to collect the goods. Mr. Yi signed the plaintiff’s delivery note and wrote an IOU stating the debtor was the defendant. The plaintiff had previously done business with the defendant and had received timely payments. When the defendant refused to pay, claiming the transaction was personal, the plaintiff brought the lawsuit.

During the court hearing, the plaintiff presented a notarized copy of the text message, the original delivery note, and the IOU. The third party Mr. Yi testified that he had borrowed Mr. He’s phone to send the order himself, and that he had not used Mr. He’s ID card copy as alleged. The defendant argued that the IOU lacked the company seal and that Mr. Yi was no longer an employee at the time of delivery. However, the defendant failed to provide evidence that Mr. Yi had left the company before that date. The court also noted that the plaintiff and defendant had an established pattern of trade, with the defendant previously sending employees to pick up goods.

The court found that a legally binding sales contract existed between the plaintiff and the defendant. The evidence showed that the order originated from Mr. He’s phone, a device used in the defendant’s business, and that Mr. Yi collected the goods while still plausibly acting as the defendant’s representative. The defendant’s failure to pay constituted a breach of contract under the Contract Law. The court ordered the defendant to pay the full principal of CNY 226,265, plus interest calculated from August 8, 2011, at the bank loan rate for the same period. The defendant was also ordered to bear the case acceptance fee of CNY 2,458.

The court’s legal reasoning turned on the doctrine of apparent authority. Because Mr. He used his work phone to place the order, and because the defendant had previously permitted similar pickups by employees without formal documentation, the plaintiff reasonably believed Mr. Yi was authorized to accept delivery. The absence of a company seal on the IOU did not negate that belief. The third party’s claim of poor product quality was not addressed because the defendant did not file a counterclaim. The court also clarified that the defendant could seek reimbursement from Mr. Yi separately for any internal liability.

This case reinforces that companies in China may be held liable for transactions initiated through employee communication channels when prior dealings support a reasonable expectation of authority. Businesses should implement clear internal controls for ordering and pickup procedures