1 Seller 2 Buyers 1 Item

It is not unusual in the lawyer’s world to hear about someone selling the same goods on the same day to different buyers under separate contracts. From the times of ancient Rome, this has created a legal conundrum: who is the rightful owner?

Courts today have methods to resolve such disputes, and modern China is no exception. During the past decade, the country’s Supreme Court has forged a path through rulings in contract disputes over sales and purchase, including a decision this year referred to as the Interpretation of the Supreme People’s Court on Issues Concerning the Application of Law for Hearing Cases of Sale and Purchase Contract Related Disputes (最高人民法院关于审理买卖合同纠纷案件适用法律问题的解释), or the “2012 Interpretation,” that went into effect on 1st July.

Among the highlights of the 2012 Interpretation is the ruling holding that if one of the parties fails to meet its obligations for a sales and purchase contract after executing a subscription document, order for purchase, advance booking document, letter of intent, memorandum or other agreement, the court will back a request by the other party asking to assign liability for breach of contract or to terminate the agreement and claim damages (Article 2).

Article 7, meanwhile, spells out the type of documents required to take delivery of the purchased goods, which shall include “insurance policies, warranties, general invoices, value-added tax invoices, product quality certificates, quality guarantees, quality assessment certificates, quality inspection certificates, product import-export quarantine certificates, proofs of origin, instruction manuals, packing lists, etc.”

As for the quandary presented in the opening paragraph, the 2012 Interpretation sets out rules for deciding the ownership of a property that has been transferred several times to different buyers. For normal merchandise sold more than once, Article 9 rules that the court shall intermediate as follows:

• If the buyer that first took delivery requests confirmation that ownership has been transferred, the court shall uphold such request
• In cases where neither of the buyers has taken delivery, the court will side with the buyer that first made payment
• If neither buyer has taken delivery nor made payment, the court sides with the buyer whose contract was formed in accordance with the law first

The 2012 Interpretation also clarifies who bears risk for loss or damage of goods bought under contract, specifically that the buyer shall be liable for loss or damage after the goods are delivered to a purchaser-designated location.

Another clarification clears up several inspection issues. Under one provision, for instance, a buyer has up to two years to notify the seller of any defect in the quantity or quality of the goods.

Considering that the application of contract law in sales and purchase matters has been constantly evolving since ancient times into an ever more complex form, we can expect China’s very own 2012 Interpretation to be subject to further amendment in the not so distant future.