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 entered into a Processing Contract, agreeing 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 RMB 12,892,800. The payment terms were: “30% of the purchase price shall be paid upon execution of the contract; an additional 30% shall be paid before shipment of the equipment; a further 30% shall be paid within 60 days after the goods arrive at the ordering party’s site or after 72 hours of normal operation following installation, whichever occurs first; and 10% shall be retained as a quality assurance deposit.” After the contract was signed, Company A completed the manufacture of the equipment as agreed and, in accordance with the contract, arranged in advance for its employees to notify Company B to inspect the goods and make payment. However, Company B never sent any personnel to conduct the inspection. Thereafter, Company A repeatedly contacted Zhang XX, Chen XX, Tang XX, and others at Company B by SMS, WeChat, and courier to arrange inspection and urge payment, and also sent multiple notices of inspection and payment demands, all of which were refused.
Accordingly, Company A filed a lawsuit with the Laixi Court on April 20, 2020, demanding that Company B pay the purchase price and interest for late payment. Subsequently, through negotiation between the parties, Company B paid 2 million yuan for the goods, and the plaintiff Company A withdrew the lawsuit. After the withdrawal, Company B made no further payments, and therefore the plaintiff filed another lawsuit.
[1] Court Opinion
During the trial, Defendant Company B filed a counterclaim, alleging that Company A had to date failed to provide the counterclaimant with a letter confirming that the equipment had been manufactured and was ready for shipment as agreed, and had not delivered the equipment. Accordingly, the payment conditions under the contract had not been satisfied, and the counterclaim defendant was requested to refund the purchase price.
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 and purchase contracts, inspection of goods is an indispensable step. This case involves a concept: what is a principal? Simply put, a principal is the party in a work contract who accepts the results of the work and pays remuneration. Therefore, the principal has the right to inspect the quality, quantity, specifications, and other aspects of the goods. Since this is an important step in contract performance, the principal must also actively conduct acceptance inspection rather than passively delay. If the principal delays the time for inspecting and accepting the goods, the subsequent interests of the contractor will inevitably be affected, which is unreasonable and unfair. Therefore, in this case, Company B, as the principal, repeatedly delayed going to Company A to inspect and accept the goods, yet instead accused Company A of failing to complete and deliver the equipment, ultimately only harming 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.
