The 2015 Civil Code, which will take effect January 1st, 2017, discusses risks that enterprises should take into consideration when creating contracts for the sale of goods, machinery, equipment and raw materials. The civil law basically respects the freedom of contractual agreements between two parties, but unless an agreement is otherwise made, the parties must comply with regulations of the law.
Some new points in the Civil Code worth noting include:
1. Ensure the quality of goods
In the course of contract review, we found that most transactional parties had agreed upon a number of terms regarding the quality of goods inconsistent with the law. These agreements concealed many risks that can lead to disputes. Parties had not collated the specialised legal provisions applicable to each particular product. In addition, quality standards should be made in separate annexes, and they should specify each commodity's identification numbers, structure, composition, quantity, date and place of manufacturing.
2. Cancel the contract for violating the delivery term
In the case of multiple deliveries, sellers should note that if a delivery violates the delivery terms, buyers can cancel the contract section that corresponds to the violation and make a claim on the damages. In cases where the delivery quantity exceeds the requested amount, the sellers may bear the risks that buyers will not accept the excess product or pay for the cost of returning the goods. If the buyers accept the excess product, sellers are entitled to receive payment for the excess with the price stated in the contract.
When a delivery falls short of its agreed-upon quantity, sellers must deliver the deficit within the time limits required by the buyers. On the other hand, buyers can cancel the contract and claim for damages.
When asynchronous delivery happens, sellers must replace the asynchronous goods for the buyers. If sellers have received the payment for goods, the sellers must pay interest on the amount received during the course of delivering the replacement and compensate at the buyers request.
If the goods delivered are not what the buyer ordered, sellers may bear the risk that buyers can cancel the contract and demand for compensation. In case there are many categories of goods and the sellers fail to deliver the right goods for one or more categories as agreed, the buyers can cancel the contract section corresponding to that category of goods.
3. Disputes over payments due to vague provisions
Usually sellers only specify the offer price and payment mode – including bank transfer or cash – in the contract. In order to avoid unnecessary disputes, therefore, the sellers should specify the following content in its sale contracts:
– The price of each commodity and whether the price includes excise taxes, import duty or other fees or charges , etc.
– Payment mode: payment currency, transaction account number, which party will bear bank transfer charges and deferred interest, etc.
In case no agreement on the price and payment mode is made, CC 2015 specifies that:
– The fluctuation of prices will be in accordance with the market price at the time of payment;
– The payment mode will be determined according to the practices at the place and time of the contract (time of delivery, time for the buyers to fully provide the receipts of goods)
Costs of transportation and relevant costs
4. The parties should clearly specify the time of transfer and costs between the parties during delivering, such as: when delivering the first shipping contract or when the goods are delivered to the buyers. In case it is not specified, the parties have to bear the risk that it will be determined in accordance with the costs announced by state agencies, or industry standards, or certain standards appropriate for purpose of contracting.
5. Redemption for goods sold
If sellers wish to redeem the sold items, they can agree upon the contract on the period of redemption, redemption price and redemption methods, etc. In such contracts that the content is not clear, the provisions of the CC 2015 stipulate that:
– The period of redemption should not exceed 1 year for movable property and 5 years for immovable property from the time the assets are allocated;
– During the redemption period, the sellers are entitled to redeem the goods at any time, but they have to notify the buyers in advance; the buyers cannot sell them to other owners and have to bear the risks for the goods;
– The redemption price will be in accordance with the market price at the time and place of redemption.
User manual of goods
CC 2015 supplements the phrase "within a reasonable time" in order to determine the amount of time the sellers must perform the responsibility to perform the instruction to use the goods. Without having it done, the sellers will bear the risk as the buyers are entitled to cancel the contract and claim for damages.