Allen
- Jan 13, 2021
- 3 min read

Chinese Attorney: What Can You Do If You Cannot Pay Your Sales Contract

Case Background:

A US Company (hereinafter the “Buyer”) reached a Contract of Sale with Chinese Supplier (hereinafter the “Seller”）in oder to purchase some equipment (hereinafter the “Goods”) from the Seller, the total value of which is about USD 100,000. According to the said Contract of Sale, the Seller shall delivery the Goods after the receipt of full payment from the Buyer, the side USD 100,000.

After USD 70,000 had been transferred into the account of the Seller, the Buyer intends to reduce the amount of Goods from the said USD 100,000 into USD 70,000 of the said Contract of Sale, which means the Buyer only wants to purchase the Goods in total value of USD 70,000. Thus the Buyer has no intention to transfer the remaining balance, in the amount of USD 30,000, with the negotiation with the Seller changing the content of the said Contract of Sale.

However, the Seller refused to accept the said demand from the Buyer or return the amount of USD 70,000 paid by the Buyer, demanding the Buyer continuously perform the said Contract of Sale and transferring the rest USD 30,000 has not been paid to its account, thus the Seller could ultimately delivery the Goods, in the original value of USD 100,000 to the Buyer.

In the case mentioned above, how to protect the benefits of the Buyer if the Seller refuses to change the content of Contract of Sale is a serious issue.

Here are some useful advice provided by Chinese attorney in our Landing Office:

Negotiation with the Seller towards the issue of changing the content of Contract of Sale is the priority method with minimum cost. In the case mentioned above, it is the Buyer failed to transfer full payment into the account fo the Seller in advance, thus communicating and negotiating with the Seller towards this issue of changing the content of previous Contract of Sale or retuning the payment is the most effective method at first stage.
Terminate the Contract of Sale for the reason that purpose of contract can not be achieved and claim full refund. if Buyer fails to negotiate with the Seller and fails to make a consent. The Buyer can choose to terminate the Contract of Sale for the reason that purpose of contract can not be achieved, thus the Buyer shall not continuously perform the said Contract of Sale and has the right to demand the Seller return the amount had been paid. However, the difficulty of this method is that the Buyer need to provide evidence to show that purpose of contract can not be achieved is due to unforeseeable, unavoidable and insurmountable objective conditions no relevant to commercial risk.
Terminate the Contract of Sale and claim part of the fund. If the Seller refuses to change the content of the Contract of Sale or return the payment had been paid, the Buyer can launch a suit, demanding terminate the said Contract of Sale and thus the Seller shall return the payment. However, due to the fact that it is the Buyer failed to transfer full payment according to the Contract of Sale, and in the case when the Seller has already started to produce the Goods, in accordance with the principle of fairness, the Buyer shall undertake a part of loss towards the said Contract of Sale, which indicates that the Buyer would possibly can not get the full payment paid before.