Case about disputes over a sales contract

Xiamen Aviation Development Co., Ltd. v. Beijing Nangang Jinyi Trading Co., Ltd. and Third Person Xiamen Dongfanglong Metallic Materials Co., Ltd. (Case about disputes over a sales contract)

[Judgment Abstract]
The provisions of Article 402 of the Contract Law before the proviso only apply to pure contractual relationship of agency. In practice, besides agency relationship, legal relations arising from an agency contract may also involve purchase and sales, debtor-creditor relationship, and guarantee. Under such circumstance, the simple application of the provisions of Article 402 of the Contract Law before the proviso may impair the lawful rights and interests of the principal. Therefore, all case facts shall be taken into full account and the provisions of Article 402 of the Contract Law shall be properly applied on the basis of cautious measurement.
Supreme People's Court Civil Ruling
(No. 2225 [2014], Civil Petition, Supreme People's Court)
Retrial Petitioner (defendant in the first instance and appellee in the second instance): Beijing Nangang Jinyi Trading Co., Ltd., domiciled in No. 75, Xinhua North Street, Tongzhou District, Beijing Municipality.
Legal Representative: Fei Kun, Chairman of the Board of Directors of this Company.

Respondent (plaintiff in the first instance and appellant in the second instance): Xiamen Aviation Development Co., Ltd., domiciled in the north side of the middle section of the tenth floor located in No. 222, Gaoqi South Fifth Road, Huli District, Xiamen City, Fujian Province.
Legal Representative: Kuang Xiaoping, Chairman of the Board of Directors of this Company.

Third Person in the First Instance: Xiamen Dongfanglong Metallic Materials Co., Ltd., domiciled in Unit 01-02, 4th floor of Tower B of Yucheng Building, No. 51, Dongdu Road, Huli District, Xiamen City, Fujian Province.
Legal Representative: Li Jianfu, Chairman of the Board of Directors of this Company.
In a case about disputes over a purchase and sales contract involving Retrial Petitioner Beijing Nangang Jinyi Trading Co., Ltd. (hereinafter referred to as “Nangang Jinyi Company”), Respondent Xiamen Aviation Development Co., Ltd. (hereinafter referred to as “Xiamen Aviation Development Company”), and Third Person Xiamen Dongfanglong Metallic Materials Co., Ltd. (hereinafter referred to as the “Dongfanglong Metallic Materials Company”), Nangang Jinyi Company refused to accept the civil judgment (No. 388 [2014], Final, Civil Division, HPC, Fujian) as rendered by the Higher People's Court of Fujian Province and filed an application for retrial with the Supreme People's Court. The Supreme People's Court legally formed a collegial penal and conducted a review of this case. At present, the review has been concluded.
PROCEDURAL POSTURE
In the application for retrial, Nangang Jinyi Company alleged that: (1) The judgment of second instance confused the triple legal identities of Xiamen Aviation Development Company in the Agency Agreement and identified that Xiamen Aviation Development Company enjoyed the status of an independent buyer under the Contract on the Purchase and Sales of Steel Products, which was seriously unclear fact-finding. The Agency Agreement was actually a contract including three different legal relations, namely, purchase of steel products by agency between Dongfanglong Metallic Materials Company and Xiamen Aviation Development Company, debtor-creditor relationship, and guarantee, and it was not a pure “agency agreement” as indicated in its name. The triple different legal relations should not be confused and furthermore, the legal status of Xiamen Aviation Development Company should not be determined as an independent buyer according to the three different legal relations. (2) The judgment of second instance denied the legal consequence of Nangang Jinyi Company's direct delivery of goods to the silent principal Dongfanglong Metallic Materials Company in accordance with the provisions of Article 402 of the Contract Law of the People's Republic of China (hereinafter referred to as the “Contract Law”), which was erroneous in the application of law. The judgment of second instance excluded the application of Article 402 of the Contract Law on the ground that Nangang Jinyi Company knew Xiamen Aviation Development Company's advancing payment for goods and should know the stipulation of “delivery upon payment for goods,” and denied the legal effect of Nangang Jinyi Company's delivery of goods to Dongfanglong Metallic Materials Company on the ground of the proviso in Article 402 of the Contract Law, which was an erroneous comprehension of the said Article. (3) The judgment of second instance identified that Nangang Jinyi Company knew Xiamen Aviation Development Company's advancing payment for goods and it should know the stipulation of “delivery upon payment for goods” and “ownership of goods belonging to Xiamen Aviation Development Company before delivery,” based on which it imposed the obligation of guaranteeing Xiamen Aviation Development Company's withdrawal of the payment for goods on Nangang Jinyi Company, which was inconsistent with the truth. (4) The judgment of second instance resulted in Xiamen Aviation Development Company's acquisition of double judgment rights due to the same losses, which seriously violated the most fundamental principle of fairness. The judgment of this case should not coexist with the prior judgment. In the effective judgment (No. 156 [2013], First, Civil Division, IPC, Xiamen) as rendered by the Intermediate People's Court of Xiamen City, Dongfanglong Metallic Materials Company and others were ordered to assume the compensation liability. Therefore, in accordance with the provisions of items (2) and (6) of Article 200 of the Civil Procedure Law of the People's Republic of China (hereinafter referred to as the “Civil Procedure Law”), Nangang Jinyi Company applied for retrial.

BASIC FACTS
In the written opinions it submitted, Xiamen Aviation Development Company held that: (1) The judgment of second instance identified that Xiamen Aviation Development Company enjoyed the status of an independent buyer under the Contract on the Purchase and Sales of Steel Products, which was clear in fact-finding and had sufficient basis. (2) The Contract on the Purchase and Sales of Steel Products involved was only binding upon Nangang Jinyi Company and Xiamen Aviation Development Company. Whether the claim of Nangang Jinyi Company that it has made direct delivery of goods to Dongfanglong Metallic Materials Company was tenable did not exempt Nangang Jinyi Company from assuming the civil liability when it breached the Contract on the Purchase and Sales of Steel Products. (3) There was no such issue that by filing this lawsuit, Xiamen Aviation Development Company acquired double judgment rights or repeated compensations. (4) In the performance of the Contract on the Purchase and Sales of Steel Products, Nangang Jinyi Company violated the principle of good faith and it should assume the corresponding civil liability. Since Nangang Jinyi Company's application for retrial lacked factual and legal basis, Xiamen Aviation Development Company requested the Supreme People's Court to reject the application.
In the view of the Supreme People's Court, the major issue involved in the examination of the application for retrial was whether Nangang Jinyi Company should return the payment for goods made by Xiamen Aviation Development Company and the interest thereof.
First, in the performance of the Agency Agreement and the Contract on the Purchase and Sales of Steel Products prior to the transaction involved, Dongfanglong Metallic Materials Company should actually take delivery of goods on the premise that Nangang Jinyi Company issued a Letter of Notice on Taking Delivery of Goods to Xiamen Aviation Development Company, and Xiamen Aviation Development Company issued a Letter of Notice on Taking out of Storage of Goods to Nangang Jinyi Company and notified Nangang Jinyi Company that the ownership of goods was transferred to Dongfanglong Metallic Materials Company. As far as the transaction involved was concerned, from the facts found in the trials of first instance and second instance, Nangang Jinyi Company actually knew such content of the Agency Agreement concluded by and between Dongfanglong Metallic Materials Company and Xiamen Aviation Development Company that “Dongfanglong Metallic Materials Company should follow the principle of ‘delivery upon payment for goods' in taking delivery of goods” and “before taking delivery of goods, the ownership of goods belonged to Xiamen Aviation Development Company.” Without Xiamen Aviation Development Company's knowledge, Nangang Jinyi Company delivered the goods directly to Dongfanglong Metallic Materials Company via a person who is not a party to the case, which in fact impaired the interest of Xiamen Aviation Development Company. Second, the provisions of Article 402 of the Contract Law on the principal's right of intervention generally govern pure contractual relationship of agency. In this case, besides the contractual relationship of agency, there were other multiple legal relations including purchase and sales, debtor-creditor relationship, and guarantee, especially the legal relationship of guarantee. In order to guarantee the safety of capital it lent, Xiamen Aviation Development Company specially stipulated in the Contract on the Purchase and Sales of Steel Products concluded by and between it and Nangang Jinyi Company that the place of delivery (taking delivery of goods) should be the warehouse of the supplier and the supplier should transfer the ownership of goods to the demander. Therefore, after Xiamen Aviation Development Company made payment for goods to Nangang Jinyi Company, the ownership of steel products delivered by Nangang Jinyi Company belonged to Xiamen Aviation Development Company. Under the circumstance where the owner Xiamen Aviation Development Company was totally uninformed, Nangang Jinyi Company delivered the steel products as agreed in the contract to Dongfanglong Metallic Materials Company and the delivery of such steel products to Xiamen Aviation Development Company was not legally effective. Therefore, on the premise that Xiamen Aviation Development Company has made a huge amount of advancing payment for goods for Dongfanglong Metallic Materials Company, if Nangang Jinyi Company knew this fact, the simple application of Article 402 of the Contract Law (without applying the proviso of the said Article) and exclusion of the right of the buyer Xiamen Aviation Development Company in the buyer-seller relationship to require Nangang Jinyi Company's return of the payment for goods would obviously damage the rights of Xiamen Aviation Development Company, which did not conform to the legislative intent of the said Article. This case should be governed by the proviso of the said Article. In other words, the aforesaid stipulation in the Contract on the Purchase and Sales of Steel Products and the fact that Nangang Jinyi Company knew Dongfanglong Metallic Materials Company received financing from Xiamen Aviation Development Company for the transaction involved were “conclusive evidence” as prescribed in the proviso of Article 402 of the Contract Law. Therefore, the Contract on the Purchase and Sales of Steel Products was only binding upon Xiamen Aviation Development Company and Nangang Jinyi Company. Finally, the Supreme People's Court held that since Dongfanglong Metallic Materials Company actually received the steel products involved but failed to make payment for goods, it was the ultimate liable person. After Nangang Jinyi Company assumed the liability in this case, it may claim compensation from Dongfanglong Metallic Materials Company. In addition, in the effective judgment (No. 156 [2013], First, Civil Division, IPC, Xiamen) as rendered by the Intermediate People's Court of Xiamen City, Dongfanglong Metallic Materials Company and other parties have been ordered to pay Xiamen Aviation Development Company the advancing payment for goods and the interest thereof. Therefore, in the enforcement procedures, this case and the said judgment should coordinate with each other, so as to avoid repeated compensations to Xiamen Aviation Development Company.
JUDGMENT
In conclusion, the application for retrial of Nangang Jinyi Company did not fall under the circumstance as prescribed in items (2) and (6) of Article 200 of the Civil Procedure Law. In accordance with the provisions of paragraph 1 of Article 204 of the Civil Procedure Law, the Supreme People's Court rendered a ruling:
To reject the application for retrial of Beijing Nangang Jinyi Trading Co., Ltd.
Presiding Judge: Yang Yongqing
Acting Judge: Wu Jingli
Acting Judge: Zhang Xiaojie
October 20, 2015
Clerk: Hao Jinqi