Party A's boss is not a father; delaying acceptance still results in compensation.
Compiled from: Laixi Court
Case review
In October 2018, Company A and Company B signed a "Processing Contract," stipulating that Company A would manufacture 40 sets of floating head shell-and-tube graphite heat exchangers for Company B, with a total contract price of 12,892,800 yuan. The payment terms were: "30% of the payment upon contract signing; another 30% before equipment shipment; 30% upon arrival at the client's site within 60 days or 72 hours after installation and normal operation (whichever comes first); and 10% as a warranty deposit." After the contract was signed, Company A completed the equipment manufacturing as agreed and arranged for employees to notify Company B for inspection and payment in advance, but Company B never sent personnel for inspection. Subsequently, Company A repeatedly contacted Company B's personnel, including Zhang, Chen, and Tang, via SMS, WeChat, and courier notifications for inspection and payment reminders, and also sent multiple inspection and payment notices, all of which were refused.
As a result, on April 20, 2020, Company A filed a lawsuit with the Laixi Court, demanding that Company B pay the outstanding amount and overdue interest. After negotiations, Company B paid 2 million yuan, and the plaintiff Company A withdrew the lawsuit. However, after the withdrawal, Company B made no further payments, prompting the plaintiff to file another lawsuit.
[1] Court Opinion
During the trial, Defendant B filed a counterclaim, alleging that Company A had not yet provided a letter confirming that the equipment was completed and ready for shipment as agreed, nor had it delivered the equipment. Therefore, the payment conditions under the contract had not been met, and it requested the counterclaim defendant to return the payment.
After trial, the court held that once the contractor completed the equipment and notified the client, the client should promptly send personnel for inspection. Based on the text messages, WeChat records, and courier contents submitted by the plaintiff, it could be determined that the client was already aware that the equipment had been completed on schedule. From the contractor's perspective, the client's inspection is a prerequisite for the contractor to deliver the work product, obtain the expected remuneration, and achieve the purpose of the contract. The client's failure to inspect would hinder the realization of the contractor's interests. In this sense, inspection is an obligation of the client. Therefore, the consequences arising from the client's breach of the inspection obligation should be borne by the client itself. Based on this, the court of first instance ruled that the defendant should pay the payment and interest for overdue payment.
After the judgment, Company B refused to accept it and filed an appeal. The court of second instance dismissed the appeal and upheld the original judgment.
Civil Code of the People's Republic of China
Article 780
Upon completion of the work, the contractor shall deliver the work results to the client and submit the necessary technical materials and relevant quality certificates. The client shall inspect the work results.
Article 787
The ordering party may terminate the contract at any time before the contractor completes the work, and if losses are caused to the contractor, compensation shall be made.
[1] The author's perspective
In most sales contracts, inspection of goods is an indispensable step. This case involves a concept: what is an ordering party? Simply put, the ordering party is the person who accepts the work results and pays remuneration in a contract for work. Therefore, the ordering party has the right to inspect the quality, quantity, and specifications of the goods. Since this is an important step in contract performance, the ordering party must actively conduct acceptance inspections and cannot be passive or negligent. If the ordering party delays the inspection and acceptance of goods, the subsequent interests of the contractor will inevitably be affected, which is unreasonable and unfair. Thus, in this case, Company B, as the ordering party, repeatedly delayed inspecting and accepting goods from Company A, and instead accused Company A of failing to complete and deliver the equipment, ultimately only hurting itself.
Another point worth noting is that, according to Article 787 of the Civil Code, the ordering party has the right to arbitrarily terminate the contract, but only before the contractor completes the work. This shows that the ordering party's right to terminate is not exercised arbitrarily. If the contractor has completed the processed work on time as agreed and has notified the ordering party, then even if the contractor has not yet delivered the work results to the ordering party, the ordering party cannot arbitrarily terminate the contract. Most importantly, if the ordering party causes losses to the contractor by exercising the right to arbitrarily terminate, the ordering party must compensate for the corresponding losses.
