Implementing the Transaction before Signing a Contract, How to Deal with the Relevant Disputes?

In commercial activities, it is not rare that the parties would implement a transaction before signing a contract, due to the time requirements, or a party is too eager to obtain a transaction opportunity and so on. However, once there is any dispute, such as a disagreement over the terms of the transaction; or the seller has implemented its responsibilities, but the buyer refuses to pay, then it would be very difficult for the parties to claim their rights and interests.

In fact, if both parties have implemented a transaction before signing a contract, it shall be deemed as a factual contract. The basis is Article 2 of the “Interpretation II of the Supreme People’s Court of Several Issues concerning the Application of the Contract Law”, in which it prescribes where the parties did not conclude a contract in a written or verbal form, but it may be inferred from the civil conduct of both parties that both parties intended to conclude the contract, the people’s court may determine that the contract was concluded in “any other form” as mentioned in paragraph 1 of Article 10 of the Contract Law, unless it is otherwise provided for by law.

In view of the above, where there is no written contract between the parties, a party has implemented its responsibilities, and the other party accepts such implementation, then it shall be deemed as a factual contract.

The key problem is how to prove the facts when disputes are raised?

Article 1 of the “Interpretation of the Supreme People’s Court on Issues Concerning the Application of Law for the Trial of Cases of Disputes over Sales Contracts” prescribes where there is no written contract between the parties and one party claims that a sales contract exists on the basis of delivery notes, goods received notes, settlement statements and invoices, the people’s court shall determine whether a sales contract has been formed by considering the transaction methods and customary business practices between the parties as well as other relevant evidence.

In judicial practice, the court would review the existence and validity of the above evidence one by one. If the evidence chain could not be built up, and a party could not prove the existence of the transaction, or there is any conflict among evidence, then the court would not confirm the contract relationship. For example, in the case, ITOCHU Corporation v. China Telecom Technology Co., Ltd. sales contract dispute, (2011)Min Shen No.170, the Supreme People’s Court found that ITOCHU used the purchasing platform of Hua Ke Company and email, to make order and arrange payment, the court confirmed the existence and validity of those implementation behaviors. However, because ITOCHU did not list the products with the specific order number, furthermore, it could not prove the order number of the products which have been sold to China Telecom Technology Co., Ltd., and the consequence was that the ITOCHU failed to prove the delivery time, price of the transaction, finally, ITOCHU lost the case.

Therefore, in the execution and implementation of a contract, companies shall pay attention to 2 points. Firstly, a written contract is a must. Secondly, if a written contract could not be signed, then the parties shall keep the evidence during the transaction.