It’s common that Chinese suppliers demand certain portion of the payment from buyers abroad before production or delivering the subject goods. Recently, one of our client from Italy reached us, and introduced a deal with its Chinese Seller as follow:
The Parties had entered into a sales contract in respect of purchasing certain laptops from the Chinese supplier. The Italian company had paid 10% of the total price as deposit, while the Chinese supplier fails to delivered the laptops. The Italian company asked our assistance to claim refund of the payment. Upon reviewing the transactions document and the related correspondences, we advised the client that he is entitle to claim double refund of the 10% payment had made. The client was quite surprised on the claim of double refund.
What’s the meaning of “Deposit”?
According to the Civil Code of PRC, the parties may agree that one party shall pay a deposit to the other party as a security for the obligation. The contract for a deposit shall be concluded from the time the deposit is actually paid. The amount of deposit shall be agreed by the parties; however, it shall not exceed 20% of the total amount of the contract, the portion in excess thereof has no effect of deposit. If the amount of deposit actually paid is more or less than the stipulated amount, the stipulated amount of deposit shall be deemed as alteration thereof.
If the obligor performs the obligation, the deposit shall be offset against the price or refunded. If the party who pays the deposit fails to perform the obligation or the performance of the obligation does not conform to the terms of the contract, thus making it impossible to realize the purpose of the contract, he shall have no right to demand the return of the deposit; If the party receiving a deposit fails to perform his/her obligations or does not perform them in accordance with the terms of the contract, thereby making it impossible to achieve the purpose of the contract, he/she shall refund twice the amount of the deposit.
However, “Down Payment”(订金） has no effect of security obligations. That is to say, you are not entitled to claim double refund when your Chinese supplier fails to deliver the goods when purchasing from China.
Now you may understand why we advise the Italian client that he’s entitled to claim double refund of the deposit mentioned above.
Our Suggestion
Obviously, “Deposit” is a two-edged sword. When you are 100% sure you will take the goods purchased from Chinese suppliers, it is suggested that you define the first payment as “deposit(定金）” in the sales contract which shall be written in Chinese and English Language, in order to mitigate the risk of your supplier’s failure of deliver of the goods.
Disclaimer
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This article has been prepared for general reference purposes only and should not be relied on as legal advice or regarded as a substitute for detailed advice in individual cases.
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