Dispute Over 100,000 RMB Design Fees: Shenzhen Court Rules on Breach of Contract in VI System Creation
Dispute Over 100,000 RMB Design Fees: Shenzhen Court Rules on Breach of Contract in VI System Creation
Case Overview
A design company in Southern China sued a toy manufacturer for failing to pay 100,000 RMB in design fees after a visual identity system project. The court ruled against the design company, finding it had breached the contract by delaying delivery and failing to submit all required materials. The ruling upheld the principle that a party who violates contractual terms first cannot demand performance from the other side.
Case Background and Facts
In March 2007, a toy company based in Eastern China entered into a written agreement with a design company from Southern China. The contract required the design company to create a complete visual identity system and a financing business plan. The total fee was 200,000 RMB, payable in four installments. The first payment of 60,000 RMB was made upon signing. The design company was to deliver the work in three stages over 75 working days. The contract also included a clause stating that if either party breached the agreement, the breaching party would pay 30,000 RMB in liquidated damages.
The design company completed the first stage and submitted a logo design called “Heavenly Marshal.” The toy company applied to register this logo as a trademark in July 2007. However, problems arose during the second stage. The design company delivered a full VI manual in September 2007, but the toy company noted it was missing the store design section. The toy company issued a receipt acknowledging the partial delivery and promised to pay the second installment within three days after receiving the financing plan draft. The design company eventually submitted a business plan in December 2007, but the toy company never made further payments.
Court Proceedings and Evidence
The design company filed a lawsuit in 2009, demanding that the toy company continue performing the contract, pay the remaining 100,000 RMB, and pay 30,000 RMB in liquidated damages. The trial court rejected all claims. The design company appealed to a higher court in Southern China.
During the appeal, the design company submitted three new pieces of evidence: email exchanges between the parties. One email showed the toy company requested multiple revisions to the logo design. Another email demonstrated the logo was finalized on June 22, 2007. A third email confirmed the toy company received 77 design drawings on July 28, 2007. The toy company objected to these emails as late-filed evidence but did not provide counter-evidence to challenge their authenticity.
The court examined the timeline of the project. The contract required the design company to complete the second stage within 40 working days after the first stage, excluding time spent on revisions requested by the toy company. The evidence showed the logo was not finalized until June 22, 2007. The design company submitted the VI design drawings on July 28, 2007, which fell within the 40-working-day window. However, the design company could not prove it delivered the financing plan on time. The toy company admitted receiving the business plan only on December 12, 2007, far beyond the agreed schedule.
Court Findings and Judgment
The appellate court found that the design company failed to prove it delivered the financing plan within the contractual timeframe. The court noted that the toy company’s receipt from September 2007 conditioned the second payment on receiving the financing plan draft. The design company claimed it had delivered the plan earlier, but it provided no delivery receipts or signed acknowledgments. The court held that both parties bore responsibility for the lack of clear evidence, but the design company, as the party seeking payment, had the burden to prove proper performance.
The court ruled that the design company had not demonstrated timely and complete performance of its obligations. Therefore, the toy company was entitled to refuse payment. The court also determined that the contract could not be enforced further because the parties had fundamentally lost trust in each other. The appellate court affirmed the trial court’s decision, dismissing all claims by the design company and ordering it to pay the appeal costs of 2,900 RMB.
Key Legal Principles
The court applied the principle of simultaneous performance and the right to suspend performance. Under Chinese contract law, when both parties have mutual obligations with a clear order of performance, the party whose obligation comes later may refuse to perform if the earlier-performing party fails to meet its obligations. The court also emphasized that the burden of proof lies with the party claiming performance. A party asserting it has fulfilled its contractual duties must provide credible evidence, such as signed receipts, delivery records, or confirmed correspondence.
Practical Insights
This case highlights the importance of documenting every stage of a creative project. Design firms and freelancers should obtain written confirmation for each delivery, especially for time-sensitive milestones. Email records can serve as evidence, but courts may scrutinize their reliability if submitted late or without supporting documentation. Clients should also clearly communicate any changes to project scope and timeline in writing. Both parties should avoid ambiguous language in receipts or acknowledgments, as vague terms can lead to disputes over what was actually delivered.
Legal References
Contract Law of the Peoples Republic of China, Articles 60, 67, and 97. Civil Procedure Law of the Peoples Republic of China (2007 Revision), Article 153, Paragraph 1, Item 1.
Disclaimer
This article is for informational purposes only and does not constitute legal advice. Consult a qualified attorney for specific legal matters.