"Collect payment first, then pay" is a condition or a time limit?

Compiled from: Shandong High Court, "Civil Code of the People's Republic of China Study Guide", LeBang Law
 
Case review
On May 10, 2013, Company A and Company B entered into a Sales Contract, under which Company A would purchase from Company B a 2 million fiber optic temperature measurement system for a subway substation. Payment terms: Company A shall pay Company B the contract price on a pro rata basis after receiving the project payment from the general contractor. Company B's warranty period for the products shall be 24 months from the date of acceptance by Company A or 28 months from the date of delivery to the site, whichever comes first. On December 25, 2013, Company A issued a project acceptance certificate to Company B, confirming that the equipment was operating normally. In addition, the subway line was put into operation on December 28, 2014.

 

Because Company A did not receive the project payment from the general contractor, Company A did not pay the corresponding amount to Company B. In 2018, Company B filed a lawsuit with the court, requesting Company A to pay the remaining project payment.
 
Company A argued that the conditions for payment of the purchase price had not been fulfilled and that the performance period had not expired. Upon trial, the court held that this argument was untenable. First, the subway line commenced operation on December 28, 2014, and pursuant to the contract between the parties, the warranty period had already expired. Second, regarding the defense of payment in proportion to the owner’s payment ratio, this provision should be interpreted and understood in accordance with the principle of good faith. Viewed from the nature and purpose of the transaction, the true intention of the parties was to shift part of the commercial risk of the owner’s delayed payment to Company B through the contractual provision, but the parties did not intend that “if the condition is not fulfilled, Company A may never pay.” Taking into account general market conditions, common experience, and common sense, Company A should perform its payment obligation after a reasonable period of time.
 
 
Civil Code of the People's Republic of China
Article 158 A civil juristic act may be subject to a condition, unless such a condition is incompatible with its nature. A civil juristic act subject to a condition precedent becomes effective upon the fulfillment of the condition. A civil juristic act subject to a condition subsequent becomes invalid upon the fulfillment of the condition.
 
Article 159 Where a party to a conditional civil juristic act improperly prevents the fulfillment of a condition for its own benefit, the condition shall be deemed to have been fulfilled. Where a party improperly facilitates the fulfillment of a condition, the condition shall be deemed not to have been fulfilled.
 
Article 160 A civil juristic act may be subject to a time limit, unless it cannot be subject to a time limit due to its nature. A civil juristic act subject to an effective time limit shall take effect when the time limit arrives. A civil juristic act subject to a termination time limit shall become invalid when the time limit expires.
 
 
[1] The author's perspective
Not all legal acts can be subject to conditions. For example, conditions that violate the law or public order and good customs, or those involving identity acts such as marriage or divorce, are not permitted. It should be noted that conditions must be future uncertain facts (e.g., rain tomorrow). If a condition is based on a certain event (e.g., the sun rising from the east), it essentially becomes a time limit rather than a condition.
 
In daily life, when setting a time limit for civil juristic acts, specifying a future date is the most common approach. However, attention must be paid to the feasibility of the date. A date such as “ten thousand years from now” exceeds the limits of human lifespan and cannot serve as a time limit. In other words, if a date is set based on the occurrence of a fact, it must be ensured that the fact will definitely occur in the future. If it is not certain to occur, it becomes a conditional juristic act.