Application of Law for the Trial of Cases of Disputes over Sales Contracts

 2018-08-12  30


  • Document NumberInterpretation No. 8 [2012] of the Supreme People’s Court
  • Area of Law Civil Law Contract
  • Level of Authority Judicial Interpretation
  • Date issued05-10-2012
  • Effective Date07-01-2012
  • Issuing Authority Supreme People's Court
  • Status Effective

Announcement of the Supreme People's Court
The Interpretation of the Supreme People's Court on Issues Concerning the Application of Law for the Trial of Cases of Disputes over Sales Contracts, adopted at the 1545th session of the Judicial Committee of the Supreme People's Court on March 31, 2012, is hereby issued and shall come into force on July 1, 2012.
May 10, 2012
Interpretation of the Supreme People's Court on Issues Concerning the Application of Law for the Trial of Cases of Disputes over Sales Contracts
(Interpretation No. 8 [2012] of the Supreme People's Court, adopted at the 1545th session of the Judicial Committee of the Supreme People's Court on March 31, 2012)
For the purpose of properly trying cases of disputes over sales contracts, this Interpretation is formulated according to the provisions of the General Principles of the Civil Law of the People's Republic of China, the Property Law of the People's Republic of China, the Civil Procedure Law of the People's Republic of China and other laws as well as in light of judicial practice.
I. Formation and Validity of Sales Contracts
Article 1 Where there is no written contract between the parties and one party claims that a sales contract exists on the basis of delivery notes, goods received notes, settlement statements and invoices, the people's court shall determine whether a sales contract has been formed by considering the transaction methods and customary business practices between the parties as well as other relevant evidence.
Where no name of a creditor is recorded in correspondence or certificates such as confirmation letters on account reconciliation or written confirmations of creditor's rights, and one party to a sales contract from this offers proof that a sales contract exists, the people's court shall support such proof, unless it can be invalidated by sufficient evidence to the contrary.
Article 2 Where both parties have signed preliminary agreements such as purchase offers, purchase orders, subscription books, letters of intent, and memorandums, and have agreed that a sales contract is to be concluded within a certain period of time, if one party does not perform the obligation of concluding a sales contract and the other party requests that it assume liability for breach of the preliminary agreements or demands the rescission of the preliminary agreements and claims compensation for damages, the people's court shall support such claims.
Article 3 Where one party claims that a contract is void on the grounds that the seller had no ownership or right of disposal over the subject matter at the time of contract formation, the people's court shall not support such claims.
Where the ownership of the subject matter cannot be transferred because the seller failed to acquire the ownership or right of disposal, if the buyer demands that the seller assume liability for breach of contract or demands the rescission of the contract and claims compensation for damages, the people's court shall support such claims.
Article 4 The people's court shall concurrently apply the relevant provisions of the Law on Electronic Signatures when determining the formation and validity of an electronic transaction contract according to the provisions of the Contract Law.
II Delivery of the Subject Matter and Transfer of Ownership
Article 5 Where the subject matter is an electronic product not requiring physical delivery, the parties have not explicitly agreed upon the delivery mode and the delivery mode also cannot be determined according to the provisions of Article 61 of the Contract Law, delivery shall be deemed to occur when the buyer receives the agreed-upon electronic product or a certification of rights.
Article 6 According to the provisions of Article 162 of the Contract Law, where the buyer rejects the excess quantity of subject matter, the buyer may keep custody of the excess quantity for the seller. Where the buyer claims that the seller is to assume reasonable expenses during the custody period, the people's court shall support such claims.
Where the buyer claims that the seller is to assume any losses not caused by the intentional conduct or gross negligence of the buyer during the custody period, the people's court shall support such claims.
Article 7 The “relevant documents and materials in addition to the document for taking delivery of the subject matter” as prescribed in Article 136 of the Contract Law shall mainly include insurance policies, warranties, ordinary invoices, special VAT invoices, product qualification certificates, quality guarantee certificates, quality appraisal certificates, quality inspection certificates, product entry-exit quarantine certificates, certificates of origin, users' manuals, and packing lists.
Article 8 Where the seller offers proof of the performance of the obligation to deliver the subject matter on the basis of special VAT invoices and tax deduction materials only, but such proof is not accepted by the buyer, the seller shall provide other evidence to prove the fact that the subject matter has been delivered.
Where, according to the contractual provisions or parties' custom, ordinary invoices are treated as proof of payment, if the buyer proves that it has performed the obligation of payment on the basis of ordinary invoices, the people's court shall support such proof, unless it can be invalidated by sufficient evidence to the contrary.
Article 9 Where the seller concludes several sales contracts for the same ordinary personal property, and the buyers all demand actual performance of the contracts and all the sales contracts are valid, the people's court shall handle the matter differently according to the following circumstances:
(1) where the buyer first to take delivery requests confirmation of transfer of ownership, the people's court shall support such requests;
(2) where no buyer takes delivery, and the buyer first to make payment requests that the seller perform contractual obligations including the delivery of the subject matter, the people's court shall support such requests; or
(3) where no buyer takes delivery of the subject matter or makes payment, but the buyer whose contract has been formed in accordance with law requests that the seller perform contractual obligations including delivery of the subject matter, the people's court shall support such requests.
Article 10 Where the seller concludes several sales contracts for the same special personal property such as a ship, aircraft or motor vehicle, and the buyers all demand the actual performance of the contracts and all the sales contracts are valid, the people's court shall handle the matter differently according to the following circumstances:
(1) where the buyer first to take delivery requests that the seller perform contractual obligations including the handling of formalities for transferring and registering ownership, the people's court shall support such requests;
(2) where no buyer takes delivery, and the buyer that has handled the formalities for transferring and registering ownership in advance requests that the seller perform contractual obligations including the delivery of the subject matter, the people's court shall support such requests;
(3) where no buyer takes delivery of the subject matter or handles the formalities for transferring and registering ownership, if the buyer that has first formed the contract in accordance with law requests that the seller perform contractual obligations including the delivery of the subject matter and the handling of formalities for transferring and registering ownership, the people's court shall support such requests; or
(4) where the seller delivers the subject matter to one of the buyers and handles the formalities for registering ownership for another buyer, if the buyer that has taken delivery of the subject matter requests registration of ownership of the subject matter under its name, the people's court shall support such requests.
III. Assumption of Risk for the Subject Matter
Article 11 The words “if the subject matter needs to be transported,” as prescribed in item (1) of paragraph 2 of Article 141 of the Contract Law, refer to circumstances where the seller is responsible for handling the formalities for consignment of the subject matter and the carrier is a forwarder that is independent from the parties to the sales contract. The assumption of risk for damage to or loss of the subject matter shall be subject to Article 145 of the Contract Law.
Article 12 After the seller transports the subject matter to the place designated by the buyer and delivers it to the carrier as agreed upon in the contract, risks of damage to or loss of the subject matter shall be assumed by the buyer, except as otherwise agreed upon by the parties.
Article 13 Where the seller sells subject matter that has been delivered to a carrier for transport and it is in transit, and the seller knows or should have known that the subject matter has been damaged or lost at the time of the formation of the contract but fails to inform the buyer, if the buyer claims that the seller assumes risk of damage to or loss of the subject matter, the people's court shall support such claims.
Article 14 Where the parties do not agree upon the assumption of risk, the subject matter is a general product class, and the seller fails to clearly specify the subject matter of the sales contract by recognizable means such as shipping documents, affixing marks, and notification of the buyer, if the buyer claims that it does not assume risk of damage to or loss of the subject matter, the people's court shall support such claims.
IV. Inspection of the Subject Matter
Article 15 Where the parties have not agreed upon the inspection period for the subject matter, and the delivery notes and confirmation forms indicating the quantity, model, and specifications of the subject matter have been signed by the buyer, the people's court shall, according to Article 157 of the Contract Law, determine that the buyer has inspected for quantity and external defects, unless such determination can be invalidated by sufficient evidence to the contrary.
Article 16 Where the seller delivers the subject matter to a third party as instructed by the buyer, and the inspection standards agreed upon between the seller and the buyer are inconsistent with those agreed upon between the buyer and the third party, the people's court shall, according to Article 64 of the Contract Law, determine the inspection standards agreed upon between the seller and the buyer to be the inspection standards for the subject matter.
Article 17 When determining the "reasonable period" as prescribed in paragraph 2 of Article 158 of the Contract Law, the people's court shall comprehensively take into account the transaction nature, purpose, methods, and customary business practice between the parties, the category, quantity and nature of the subject matter, the circumstances regarding installation and use, the nature of any defects, the duty of reasonable care to be assumed by the buyer, the inspection methods and their degree of difficulty, the specific environment at the location of the buyer or inspector and their own skills as well as other reasonable factors, and make a judgment based on the principle of good faith.
“Two years” as prescribed in paragraph 2 of Article 158 of the Contract Law is the longest reasonable period. This period is a non-variable period and does not apply to provisions on the suspension, interruption or extension of the statute of limitations.
Article 18 Where the inspection period agreed upon is too short, if according to the nature of the subject matter and the customary business practice, the buyer cannot complete full inspection within the inspection period, the people's court shall determine that such an inspection period is the period during which the buyer can raise an objection to external defects and shall, according to the provisions of paragraph 1 of Article 17 of this Interpretation, determine the reasonable period during which the buyer can raise an objection to latent defects.
Where the inspection period agreed upon or the quality guarantee period is shorter than that as prescribed in laws and administrative regulations, the people's court shall determine that the inspection period or quality guarantee period is subject to such provisions of laws and administrative regulations.
Article 19 Where the buyer raises an objection within the reasonable period, if the seller claims that the buyer has waived the objection on the grounds that the buyer has made payment, confirmed the amount owed, or used the subject matter, the people's court shall not support such claims, except where the parties have agreed otherwise.
Article 20 After the inspection period, the reasonable period, and the two-year period as prescribed in Article 158 of the Contract Law have passed, where the buyer claims that the quantity or quality of the subject matter does not comply with the contractual agreement, the people's court shall not support such claims.
After the seller voluntarily assumes liability for breach of contract, where the seller retracts the assumption of liability on the ground that the time periods mentioned in the preceding paragraph have expired, the people's court shall not support such a retraction.
V. Liability for Breach of Contract
Article 21 Where the buyer retains a portion of the contract price as a quality guarantee deposit as agreed upon in the contract, and the seller fails to resolve quality problems in a timely manner within the quality guarantee period, which affects the value or utility of the subject matter, if the seller claims the payment of such portions of the contract price, the people's court shall not support such claims.
Article 22 Where the buyer raises an objection regarding quality within the inspection period, quality guarantee period, or reasonable period, if the seller fails to repair the subject matter as demanded or, due to emergency the buyer repairs the subject matter itself or through a third party, and the buyer claims that the seller is to assume the reasonable expenses incurred thereby, the people's court shall support such claims.
Article 23 Where the quality of the subject matter does not comply with the contractual provisions, if the buyer claims a reduction of price according to Article 111 of the Contract Law, the people's court shall support such claims. Where the parties claim that the price difference is to be calculated according to the market value, at the time of delivery, of the subject matter that would comply with the contractual agreement as compared to the subject matter that was actually delivered, the people's court shall support such claims.
After payment is made, where the buyer claims that the excess price after reduction should be returned, the people's court shall support such claims.
Article 24 A change of the payment period in a sales contract does not affect liquidated damages for late payment agreed upon by the parties; however, the accounting of time for such liquidated damages shall be changed accordingly.
Where liquidated damages for late payment have been agreed upon in a sales contract, but the seller refuses to pay the liquidated damages on the ground that the seller did not claim the liquidated damages for late payment when accepting payment, the people's court shall not support such refusals.
Where liquidated damages for late payment have been agreed upon in a sales contract, but there is no reference to duties regarding late payment in the account statement or repayment agreement, if the seller requests that the buyer pay liquidated damages for late payment according to the contractual provisions when the seller claims the amount owed on the basis of the account statement or repayment agreement, the people's court shall support such a request, unless the principal and the amount of interest accrued from late payment are expressly stated in the statement or repayment agreement, or the details agreed upon regarding the principal and interest in the sales contract have been changed.
Where there are no contractual provisions on liquidated damages for late payment or calculation methods therefor, if the seller claims compensation for losses caused by late payment on the ground that the buyer breached the contract, the people's court may calculate the losses on the basis of the benchmark interest rate for loans of the same type in the same period prescribed by the People's Bank of China and by reference to the standards for interest rates on late payment penalties.
Article 25 Where the seller fails to perform or improperly performs the accessory obligation and the buyer's purpose of the contract has been frustrated, if the buyer claims contract rescission, the people's court shall support such a claim according to the provisions of item (4) of Article 94 of the Contract Law.
Article 26 After a sales contract is rescinded due to breach of contract, where the non-breaching party claims that the liquidated damages clause continues to apply, the people's court shall support such claims; however, where the liquidated damages agreed upon are excessively higher than the losses caused, the people's court may handle the matter according to the provisions of paragraph 2 of Article 114 of the Contract Law.
Article 27 Where one party to a sales contract claims the payment of liquidated damages on the ground that the other party breached the contract, and the other party raises a defense of exemption from liability on the ground that a contract was not formed, did not take effect, is void or there was no breach, and the same party fails to claim an adjustment to excessively high liquidated damages, the people's court, if the court does not support the defense of exemption from liability, shall provide explanations on whether the parties need to claim adjustment to liquidated damages.
Where the court of first instance holds that the defense of exemption from liability is established and does not provide an explanation, if the court of second instance holds that liquidated damages are to be paid, the court of second instance may directly provide an explanation and amend the judgment.
Article 28 Where liquidated damages agreed upon in a sales contract are insufficient to compensate one party's losses due to the breach of contract by the other party, and the compensation requested by the party exceeds the liquidated damages, the people's court may handle the matters concurrently; however, the total amount of the liquidated damages and the compensation for losses may not be greater than the losses caused by the breach of contract.
Article 29 Where one party to a sales contract causes losses to the other party due to a breach of contract and the latter claims compensation for losses to realizable interests, the people's court shall determine the losses according to the party's claim and pursuant to Articles 113 and 119 of the Contract Law and Articles 30 and 31 of this Interpretation.
Article 30 Where one party to a sales contract causes losses to the other party due to a breach of contract and the latter is also at fault for the occurrence of such losses, if the breaching party claims a reduction to the corresponding amount of compensation for losses, the people's court shall support such claims.
Article 31 Where one party to a sales contract obtains benefits due to the breach of contract by the other party, if the latter makes claim for deduction of such benefits from the amount of compensation for losses, the people's court shall support such claims.
Article 32 Where, according to contractual provisions, the seller's guarantee liability for the defects of the subject matter is reduced or exempted, but the seller fails to inform the buyer of such defects by intentional conduct or gross negligence, if the seller claims a reduction or exemption to the guarantee liability for defects according to the contractual provisions, the people's court shall not support such claims.
Article 33 Where the buyer knows or should have known of quality defects in the subject matter at the time of the conclusion of the contract and claims that the seller is to assume guarantee liability for such defects, the people's court shall not support such claims, unless the buyer did not know that such defects would cause a clear reduction in the basic utility of the subject matter at the time of the conclusion of the contract.
VI. Retention of Ownership
Article 34 Where a party to a sales contract claims that the provisions on the retention of ownership of the subject matter in Article 134 of the Contract Law apply to real estate, the people's court shall not support such claims.
Article 35 Where the parties agree upon the retention of ownership, if before the ownership of the subject matter is transferred, the buyer falls under any of the following circumstances and causes damage to the seller, and the seller claims the recovery of the subject matter, the people's court shall support such claims:
(1) fails to make payment as agreed;
(2) fails to fulfill the specific conditions as agreed; or
(3) sells, pledges or conducts any other improper disposal of the subject matter.
Where the value of the recovered subject matter is markedly reduced, and the seller demands that the buyer compensate for losses, the people's court shall support such demands.
Article 36 Where the buyer has paid 75% or more of the total price of the subject matter, and the seller claims the recovery of the subject matter, the people's court shall not support such claims.
Under the circumstances as prescribed in item (3) of paragraph 1 of Article 35 of this Interpretation, where a third party has acquired in good faith the ownership of the subject matter or other property rights according to Article 106 of the Property Law, and the seller claims the recovery of the subject matter, the people's court shall not support such claims.
Article 37 After the subject matter is recovered by the seller, where the buyer eliminates the grounds for the recovery of the subject matter by the seller within the redemption period agreed upon by both parties or designated by the seller, and the buyer claims redemption of the subject matter, the people's court shall support such claims.
Where the buyer fails to redeem the subject matter within the redemption period, the seller may sell the subject matter.
Where the seller sells the subject matter, if there is a remainder in the proceeds derived from the sale after the expenses regarding the return, custody, re-sale, interest, and unliquidated price are deducted successively, the remainder shall be returned to the original buyer; if the proceeds derived from the sale is insufficient, where the seller demands that the original buyer pay off the outstanding amount, the people's court shall support such requests, except where the original buyer has evidence to prove that the seller's selling price was clearly lower than the market price.
VII. Special Sales
Article 38 The term “installment payment” as prescribed in paragraph 1 of Article 167 of the Contract Law means that the buyer pays the total price payable to the seller in at least three payments within a prescribed time limit.
Where an agreement on installment payment in a sales contract violates the provisions of paragraph 1 of Article 167 of the Contract Law and damages the interests of the buyer, if the buyer claims that such an agreement is void, the people's court shall support such claims.
Article 39 Where the seller, in an agreement on installment payment in a sales contract, may retain payment already received when the contract is rescinded, if the amount retained by the seller exceeds fees for use of the subject matter and compensation for damages to the subject matter, and the buyer requests the return of the excess amount, the people's court shall support such requests.
Where fees for use of the subject matter are not agreed upon by the parties, the people's court may determine such fees by reference to the local standards for the rental of like subject matter.
Article 40 Where the quality of a sample as agreed upon in a contract is inconsistent with written descriptions and the parties fail to reach consensus when a dispute arises, if there are no changes to the external appearance and the internal qualities of the sample after being sealed, the sample shall be the standard used by the people's court; if there are changes to external appearance and internal qualities, or the parties have disputes over whether there are changes but there is no way to ascertain any changes, the written descriptions shall be the standard used by the people's court.
Article 41 In a sale with trial period, where the buyer has paid a portion of the price within the trial period, the people's court shall determine that the buyer consented to the purchase, except where it is otherwise agreed to in the contract.
Within the trial period, where the buyer engages in conduct which is non trial, such as selling, renting, and setting a security interest on the subject matter, the people's court shall determine that the buyer has consented to the purchase.
Article 42 Where a sales contract has agreements with any of the following content, it is not a sale with trial period. Where the buyer claims that it is a sale by trial, the people's court shall not support such claims.
(1) it is agreed that when the subject matter satisfies certain requirements upon trial or inspection, the buyer shall purchase the subject matter;
(2) where it is agreed that when a third party approves the subject matter upon testing, the buyer shall purchase the subject matter;
(3) where it is agreed that the buyer may exchange the subject matter within a prescribed time limit; or
(4) where it is agreed that the buyer may return the subject matter within a prescribed time limit.
Article 43 Where the parties to a sale by trial do not agree upon the fee for use or agreement is not clear, and the seller claims payment of a fee for the buyer's use, the people's court shall not support such claims.
VIII. Other Issues
Article 44 Where, after performing delivery obligations, the seller claims payment from the buyer, and the buyer raises an objection on the ground that the seller first breached the contract, the people's court shall handle the matter differently according to the following circumstances:
(1) where the buyer refuses to pay liquidated damages and compensate for losses, or claims that the seller take remedial measures such as a price reduction, it is deemed that the buyer raised a defense; or
(2) where the buyer claims that the seller pay liquidated damages and compensate for losses, or requests the rescission of the contract, the buyer shall raise a counterclaim.
Article 45 Where there are provisions in laws or administrative regulations regarding contracts for the transfer of rights, such as the transfer of creditor's rights or equity, such provisions shall prevail; where there are no such provisions, the people's court may, according to the provisions of Articles 124 and 174 of the Contract Law, refer to and apply the relevant provisions of the sales contract.
Where contracts for the transfer of rights or other non-gratuitous contracts refer to and apply the relevant provisions of a sales contract, the people's court shall first cite the provisions of Article 174 of the Contract Law and then cite the relevant provisions of the sales contract.
Article 46 Where provisions on contracts regarding the non-gratuitous transfer of the ownership of subject matter, such as purchase and sales contracts and sales contracts, issued by the Supreme People's Court before this Interpretation enters into force conflict with this Interpretation, such provisions shall no longer apply as of the date this Interpretation enters into force.
This Interpretation shall apply to cases of disputes over sales contracts that have not completed final appellate review after this Interpretation enters into force; where cases have completed final appellate review before this Interpretation enters into force, and a party files an application for a retrial or such cases are to be retried as determined according to the trial supervision procedures, this Interpretation shall not apply.