Furniture Not Delivered as Promised: How Is Breach of Contract Compensation Handled?

Compiled from: Gaoqing Court

Case Review

In June 2023, plaintiff Wang purchased furniture from defendant Li's home furnishing store on the fourth floor of a shopping mall, paying a total of 37,299.99 yuan. Both plaintiff Wang and defendant Li acknowledged the received and undelivered goods. According to the order form provided by plaintiff Wang, the value of the remaining undelivered goods was 7,729.00 yuan. In September 2023, defendant Li wrote a letter of commitment stating: "I promise to deliver all products before October 2023. If I breach this agreement, I will bear a penalty of 10,000 yuan." Defendant Li signed and fingerprinted the document. Plaintiff Wang filed a lawsuit with the court, requesting: 1. Termination of the furniture sales contract between the parties; 2. Return of the payment of 37,299.99 yuan by Li and compensation for the price difference of 7,000.00 yuan; 3. Payment of 10,000.00 yuan in liquidated damages and 2,400.00 yuan in other losses by Li; 4. The shopping mall to bear joint liability for the first and second claims.

After trial, the court found that the issues in dispute were: 1. Whether the conditions for rescission of the sales contract between plaintiff Wang and defendant Li were satisfied; 2. The assumption of liability for breach of contract by defendant Li; 3. Whether the defendant shopping mall should bear liability.

I. Regarding whether the conditions for rescission of the sales contract between plaintiff Wang and defendant Li were satisfied. Rescission of a sales contract is divided into contractual rescission and statutory rescission. In this case, plaintiff Wang sought to rescind the sales contract with defendant Li. Since the parties did not mutually agree to rescind the contract, based on Article 563 of the Civil Code and the performance of the sales contract between the parties, although defendant Li's performance did not conform to the agreement, he had delivered most of the goods as agreed. The quantity and amount of the undelivered remaining goods were relatively small in the overall sales contract, and this delayed performance did not constitute a principal obligation, thus failing to meet the statutory requirements for contract rescission. Therefore, plaintiff Wang's claim for rescission of the sales contract lacked legal basis and was not supported by the court. The court supported plaintiff Wang's claim for defendant Li to return the payment of 7,729.00 yuan in accordance with the law.

II. Regarding the assumption of liability for breach of contract by defendant Li. According to Article 601, Paragraph 1, and Article 577 of the Civil Code, defendant Li promised to deliver all products by October 2023. Defendant Li repeatedly delayed delivery and has not yet delivered all goods, constituting a breach of contract, and should bear corresponding liability for breach. The liquidated damages of 10,000.00 yuan voluntarily undertaken in his written promise represented the true intent of both parties. The principle of good faith is both a fundamental principle of the Civil Code and a golden rule in the commercial field, which all parties must observe. Therefore, the court supported plaintiff Wang's claim for defendant Li to pay liquidated damages of 10,000.00 yuan as agreed.

III. Regarding whether the defendant shopping mall should bear liability. Plaintiff Wang argued that the defendant shopping mall, as the provider and manager of the store, and defendant Li, as a managed party of the mall, should bear joint liability. According to Article 178, Paragraph 3 of the Civil Code and Article 43 of the Consumer Protection Law of the People's Republic of China, even if the defendant shopping mall should bear liability, it would be direct compensation liability after defendant Li ceases to lease the involved store, not joint liability. Since plaintiff Wang has already sought compensation from defendant Li and has no evidence that defendant Li has ceased leasing the involved store, plaintiff Wang's claim for the defendant shopping mall to bear joint liability lacked legal basis and was not supported by the court.

Court Judgment

I. Defendant Li shall return the payment of 7,729.00 yuan to plaintiff Wang within seven days from the effective date of this judgment; II. Defendant Li shall pay liquidated damages of 10,000.00 yuan to plaintiff Wang within seven days from the effective date of this judgment; III. Plaintiff Wang's other claims are dismissed.

After the first-instance judgment was rendered, neither party appealed, and the judgment has taken effect.

Civil Code of the People's Republic of China

Article 562

The parties may rescind the contract upon mutual agreement. The parties may agree on the grounds for one party to rescind the contract. When the agreed grounds for rescission occur, the party entitled to rescind may rescind the contract.

Article 563

Under any of the following circumstances, a party may rescind the contract:

(1) The purpose of the contract cannot be achieved due to force majeure;

(2) Before the expiration of the performance period, one party expressly states or indicates through its own conduct that it will not perform its principal obligations;

(3) If one party delays performance of a principal obligation, and still fails to perform within a reasonable period after being demanded;

(4) If one party delays performance of an obligation or commits other breaches that frustrate the purpose of the contract;

(5) Other circumstances provided by law. For an indefinite contract with continuous obligations, either party may terminate the contract at any time, provided that notice is given to the other party within a reasonable period in advance.

Article 577

If one party fails to perform its contractual obligations or performs them in a manner inconsistent with the agreement, it shall bear liability for breach, such as continuing performance, taking remedial measures, or compensating for losses.

Article 601

The seller shall deliver the subject matter at the agreed time. If a delivery period is agreed upon, the seller may deliver at any time within that period.

Law of the People's Republic of China on the Protection of Consumer Rights and Interests

Article 43

If a consumer's legitimate rights and interests are harmed when purchasing goods or receiving services at an exhibition or from a leased counter, the consumer may claim compensation from the seller or service provider. After the exhibition ends or the counter lease expires, the consumer may also claim compensation from the exhibition organizer or the counter lessor. After compensating, the exhibition organizer or counter lessor has the right to seek recourse from the seller or service provider.

[4] Author's Opinion

This case primarily concerns the buyer's exercise of the right to rescind the contract and the breaching party's liability for breach when the contract is delayed in performance. The focus of the dispute in this case is whether the conditions for contract rescission are met and how liability for breach should be borne.

Whether the conditions for contract rescission are met. Contract rescission is a method of terminating the rights and obligations of a contract during its performance, involving the creation and invocation of formation rights and defenses, as well as whether the conditions for rescission are met and the assumption or exemption of liability for breach. Determining whether the conditions for rescission are met is a key point in adjudicating contract rescission cases. Contract rescission is divided into rescission by agreement based on the parties' autonomy and statutory rescission. From the perspective of judicial practice and legal effect, if the seller fails to deliver or fully deliver the goods, it constitutes a breach. If the parties cannot reach an agreement through negotiation, it should be examined whether the conditions for statutory rescission are met. In cases of statutory rescission, whether the conditions for contract rescission are met should be determined by the court after trial.

Liability for breach of contract due to delayed performance refers to how liability is borne when one party fails to fully perform its contractual obligations. In this case, as the counterparty to the contract, the shop operator should fully perform its contractual obligations in accordance with the contract. If it fails to perform or performs in a manner inconsistent with the contract, it shall bear liability for breach of contract, such as continuing performance, taking remedial measures, or compensating for losses. As the mall manager, even if the defendant mall should bear liability, it is only after the defendant Li ceases to lease the involved shop that direct compensation liability arises, rather than joint and several liability with the shop or its operator.