Court Rules on Cement Purchase Dispute and Awards CNY 951,584
A trading company based in Eastern China City sued a construction company and its branch for unpaid cement procurement fees and breach of contract. The dispute arose from a 2008 agreement under which the plaintiff purchased cement on behalf of the defendants for their construction projects. After the defendants failed to settle the outstanding balance, the plaintiff filed a lawsuit seeking payment of CNY 951,584.74 in overdue funds plus CNY 100,000 in liquidated damages for late payment.
In May 2008, the defendant’s branch entered into a written procurement contract with the plaintiff. Under the terms, the plaintiff was to buy cement from a designated manufacturer, and the defendants were to pay the full amount by the 25th of each month based on delivery. The contract imposed a daily penalty of 5 per thousand for overdue payments. It also contained a special clause penalizing drivers caught stealing cement: CNY 5,000 for theft under 4 tons and CNY 10,000 for theft over 4 tons. By early January 2012, the plaintiff sent an enterprise confirmation letter to the defendant parent company, which acknowledged a debt of CNY 951,584.74 by affixing its financial seal. The plaintiff then initiated legal proceedings.
During the hearing, the plaintiff submitted the procurement contract, the confirmation letter, and three handwritten IOUs. The defendants acknowledged the contract’s authenticity but argued that the actual amount owed should be based on signed delivery receipts, which they claimed showed only CNY 718,728.94. They also alleged that the plaintiff’s drivers had repeatedly stolen cement and demanded a deduction of CNY 20,000 for two known incidents, and further claimed at least 20 thefts worth CNY 50,000. The defendants further challenged the penalty rate as excessive, requesting it be capped at the bank lending rate. The plaintiff denied knowledge of any theft and pointed out that the confirmation letter itself validated the higher figure.
The court examined the evidence and heard both parties’ arguments. It found that the confirmation letter, bearing the defendant parent company’s financial seal, constituted a valid acknowledgment of the debt. As for the theft allegations, the court noted that the defendants had never reported the matter to the police and relied only on internal photos and speculation. Without concrete proof linking the drivers’ actions to missing cement, the court declined to accept the deduction claims. Regarding the penalty, the court agreed with the defendants that the contractual rate of 5 per thousand per day was disproportionately high.
According to the court, the procurement contract was legally valid and binding on both sides. The branch entered the contract within its operational scope, and the parent company was responsible for its branch’s liabilities. The court applied Article 107 and Article 114 of the Chinese Contract Law, which empower judges to adjust excessive penalty clauses. It also referenced Article 398 concerning agency obligations. The court determined that the penalty should be reduced to 1.3 times the benchmark loan interest rate set by the People’s Bank of China, calculated from January 5, 2012, until the date of actual payment.
The court ordered the construction company and its branch to jointly pay the plaintiff CNY 951,584.74 in outstanding procurement fees within seven days of the judgment taking effect. It also directed the defendants to pay liquidated damages at 1.3 times the central bank’s one-year loan rate for the same period. The plaintiff’s additional claim for a fixed CNY 100,000 penalty was denied. Court costs and preservation fees totaling CNY 12,132 were split, with the plaintiff bearing CNY 204 and the defendants the remainder. This ruling underscores the importance of clear documentary evidence and reasonable penalty clauses in commercial agency contracts.
Disclaimer: This article is for informational purposes only and does not constitute legal advice.