Court Rules Equipment Manufacturer Entitled to 109,000 RMB in Unpaid Contract Fees Plus Damages

Court Rules Equipment Manufacturer Entitled to 109,000 RMB in Unpaid Contract Fees Plus Damages

Case Overview
A Chinese civil court in Eastern China ruled that a packaging company must pay 109,000 RMB in outstanding fees and damages to an equipment manufacturer for two custom equipment contracts. The court found that the packaging company failed to fully pay for two sets of generator assembly lines and a production line modification, despite having received and used the equipment. The judgment clarified that a related company that received the equipment was not jointly liable.

Case Background and Facts
In September 2009, an equipment manufacturer entered into a contract with a packaging company to produce two sets of generator assembly lines for a total price of 120,000 RMB. The contract required a 30% deposit upfront, 65% payment upon installation, and the remaining 5% within six months. It also specified a penalty of 0.3% per day for late payment. The manufacturer completed the equipment on October 1, 2009, and delivered and installed it at a factory owned by a related industrial and trading company. In October 2009, the packaging company requested a modification to an existing production line for an additional 39,000 RMB, with payment due in full after completion. The manufacturer finished this work on October 23, 2009. The packaging company paid only 50,000 RMB, leaving 109,000 RMB unpaid. The manufacturer sued the packaging company and the industrial and trading company for joint payment.

Court Proceedings and Evidence
The manufacturer presented two written contracts signed via fax, delivery receipts, and evidence of the packaging company’s name change and ownership structure. The packaging company initially admitted to signing the contracts but later denied them, claiming the manufacturer never performed the work. The court rejected this denial, noting that the packaging company had already paid 50,000 RMB, which indicated acceptance of the equipment. The industrial and trading company did not appear in court or submit a defense. The court examined evidence showing that the packaging company and the industrial and trading company shared close ties, including common shareholders and directors.

Court Findings and Judgment
The court held that the packaging company was the proper contracting party and must pay the outstanding 109,000 RMB. It applied the payment to the earlier contract first, leaving 70,000 RMB due under the first contract and 39,000 RMB under the second. The court awarded damages on 64,000 RMB from October 24, 2009, and on 6,000 RMB from April 2, 2010, at a rate of 0.06% per day, as the manufacturer had voluntarily reduced the originally agreed penalty. The court denied damages on the 39,000 RMB for the second contract because that contract lacked a penalty clause. The court dismissed the claim against the industrial and trading company, finding that it merely received the equipment on behalf of the packaging company and was not a party to the contracts.

Key Legal Principles
Contracts formed via fax are valid written agreements under Chinese contract law. A party’s admission of a fact in court is binding unless contradicted by stronger evidence. When multiple debts exist, payments apply first to the earliest due debt unless otherwise agreed. Penalty clauses must be specified in the contract; courts will not imply them.

Practical Insights
Businesses should ensure all contract terms, including payment schedules and penalty clauses, are clearly written and signed by both parties. Delivery receipts signed by a related company’s representative may not create a contractual relationship with that company. Voluntary reduction of a penalty rate can make a claim more likely to succeed in court.

Legal References
Contract Law of the People’s Republic of China, Articles 11, 109, 114, and 263. Supreme People’s Court Interpretation on Contract Law (II), Article 20. Supreme People’s Court Rules on Civil Evidence, Article 74.

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