Sale of Goods Contracts in China

Sale of goods contracts (maimai hetong, 买卖合同) are governed by Articles 595-647 of the Civil Code, which substantially reproduce the 1999 Contract Law’s provisions with modest refinements. The sale of goods is the most common type of contract in Chinese commercial practice and provides the paradigm for contract law rules on formation, performance, and remedies.

Formation

A sale of goods contract is formed by offer and acceptance, with the essential terms being the subject matter and quantity (Article 595). Price, delivery time, place, and other terms may be implied or determined by supplementary means. The Civil Code adopts a flexible approach to formation, recognizing that commercial parties may not agree on all terms at the time of contracting.

Where price is not agreed, Article 511 provides that the contract may be performed at the market price of the same or similar goods at the time of formation, or at the government-guided or government-fixed price where applicable. This provision allows contracts to be formed even where parties have not specified the price, subject to subsequent determination.

Delivery and Risk Transfer

Delivery (jiaofu, 交付) is the central obligation of the seller. The Civil Code distinguishes between actual delivery and constructive delivery, the latter including delivery by document, delivery by bill of lading, and delivery by direction. The time and place of delivery determine both performance of the seller’s obligations and the transfer of risk.

Risk of accidental loss or damage to the goods passes from seller to buyer upon delivery (Article 604). This follows the principle that risk passes with possession, regardless of ownership. Where the parties have agreed upon the place of delivery, risk passes when the goods are delivered at that place. Where the goods are in transit (sale of goods in transit), risk passes at the time the contract is formed (Article 606). The seller bears risk during transit until delivery is completed.

Where delivery does not conform to the contract — wrong quantity, wrong goods, or defective goods — risk remains with the seller until the non-conformity is cured (Article 610). This provides an important exception to the general risk transfer rule and protects buyers from bearing risk for non-conforming goods.

Inspection and Notice

The buyer has the duty to inspect the goods within a reasonable time after delivery (Article 620-623). If the buyer fails to give notice of non-conformity within two years from delivery (or within the warranty period if shorter), the goods are deemed conforming (Article 621). This two-year limitation does not apply where the seller knew or should have known of the non-conformity.

The inspection requirement is qualified by the parties’ agreement on inspection procedures and time limits. Commercial contracts frequently specify detailed inspection protocols, time periods, and notification requirements. Where the parties have agreed on a quality guarantee period, the buyer must notify within that period.

Warranty Against Defects

The seller warrants that the goods are free from defects in title and quality. The title warranty (changuan baozheng) requires that the seller has the right to dispose of the goods and that the goods are free from encumbrances (Article 612-614). Where a third party claims rights in the goods, the seller must join the proceedings to defend the buyer’s title.

The quality warranty (zhiliang baozheng) requires that the goods conform to the quality standards specified in the contract or, where not specified, be fit for their ordinary purpose (Article 615-616). The seller bears strict liability for quality defects, regardless of fault. The Civil Code’s implied warranty extends to the ordinary purpose of the goods, the specific purpose communicated to the seller, and the standards established by product samples or descriptions.

Statutory Limitation

The general limitation period for civil claims under the Civil Code is three years from the date when the obligee knows or should have known that its rights were infringed (Article 188). For sale of goods contracts, the limitation period runs from the date of breach but may be renewed by acknowledgment, partial payment, or other acts constituting acknowledgment of the debt.

The limitation period may be extended by agreement of the parties, though the maximum extension period is unclear under Chinese law. The SPC has held that limitation periods cannot be modified by agreement to a period shorter than one year or longer than three years from the due date, maintaining the standard limitation framework for commercial transactions.

Remedies for Breach

The buyer’s remedies for breach by the seller include: specific performance (requiring delivery of conforming goods), repair or replacement of defective goods, price reduction, and damages (Article 577-584). The buyer may also rescind the contract where the breach is material, including failure to deliver, delivery of non-conforming goods that substantially impair the value of the contract, or failure to cure non-conformity within an additional period of time.

The seller’s remedies for breach by the buyer include: specific performance (requiring payment of the price), damages for non-acceptance, and rescission. The seller may also suspend performance where the buyer’s financial condition has deteriorated (Article 527). Damages are measured by the loss caused by the breach, including lost profit, limited by the foreseeability rule.