Custom Machine Contract Dispute: Court Orders Performance for CNY 65,000
A Chinese court has ruled on a dispute over a custom machine manufacturing contract valued at CNY 65,000. The plaintiff, Aozhong Lighting Co., Ltd., sued the defendant, Mr. Chang, seeking return of a CNY 26,000 prepayment and contract rescission. The defendant counterclaimed for continued performance and payment of the remaining CNY 39,000. The court dismissed the plaintiff’s claims, ordered the contract to proceed, but rejected the counterclaim for immediate payment.
In May 2011, Aozhong entered into a written agreement with Ligu Factory, a sole proprietorship owned by Mr. Chang, for the manufacture of a 20W tube bracket machine according to specifications provided by Aozhong. The total price was CNY 65,000. The contract required Aozhong to pay 40 percent (CNY 26,000) as a prepayment at signing, and to arrange transportation for pickup. Ligu Factory was to deliver within 45 days after receiving the prepayment and was responsible for loading the machine onto the vehicle. Aozhong paid the prepayment on June 7, 2011, making the delivery deadline July 22, 2011. Aozhong later claimed that the machine was not delivered, and on November 28, 2011, sent a lawyer’s letter demanding delivery within three days or it would treat the contract as rescinded. When no machine was collected, Aozhong filed suit in January 2012. Mr. Chang responded that the machine had been completed and that Aozhong had failed to arrange pickup, and he filed a counterclaim.
During the hearing, both parties presented evidence. Aozhong submitted the contract, the bank transfer record of the prepayment, the lawyer’s letter, and postal receipts. Mr. Chang provided a copy of the contract drawings, phone records showing he called the number listed in the lawyer’s letter after receiving it, and a written notice sent to Aozhong in February 2012 requesting pickup. The court accepted all evidence as authentic. Aozhong argued that the phone call was answered by an assistant and that the content of the conversation was unknown. Mr. Chang stated that he informed the assistant that the machine was ready for pickup, but received no response.
The court first examined the legal nature of the contract. According to Chinese contract law, a contract under which a party manufactures a product according to the other party’s specific requirements is a work contract, not a sale of goods. The court held that the agreement fell under the definition of a work contract (Cheng Lan) because the machine was built to Aozhong’s drawings and specifications. Thus, the applicable legal framework was that of work contracts. Turning to the question of rescission, the court noted that the contract did not grant either party a right to cancel. For Aozhong to succeed, it had to prove a fundamental breach by Mr. Chang. The evidence showed that Aozhong’s own lawyer’s letter of November 28 effectively extended the performance deadline by three days, demonstrating that Aozhong still expected performance. Mr. Chang responded promptly by telephone to the number provided in