Consequences of void contract

Consequences of void contract

Question: Our company entered into a sales contract with a PRC enterprise for the sale of our products. Subsequently, we had disputes with the PRC enterprise over the quality of the products and the purchase price has not yet been paid. We was also notified that the business scope of the PRC enterprise does not permit it to purchase the type of products that we supplied. We understand from some PRC expertise that the contract might be void (from the beginning). If this is the case, we would like to know the followings:
1. Whether we can have the products returned?
2. Whether the sub-standard quality of the products, as claimed by the purchaser, will be of any relevance?
3. Whether we may claim damages?"

Answer:

According to the details provided by you, my answer to your question are as follows:

1. Before answering your 3 exact questions, we should know the validity of the sales contract entered into by and between you company and a PRC enterprise for the sale of your products.

According to the provision of Article 10 of Explanation 1 to Several Questions of the Supreme People's Court of PRC Concerning Application of Contract Law of PRC,the people's court does not hold that void is the contract entered into by one party going beyond its business scope except violating the provisions concerning restraint by the State of operation, franchise of operation, and prohibition provided by laws and administrative regulations by the State Council of operation. That is to say, provided that the PRC enterprise does not violate mandatory provisions as said above, although purchase of the type of products you supplied was not included in the business scope of the PRC enterprise, the pertinent contract is still valid and in force. Provided that the PRC enterprise violates mandatory provisions as said above, the pertinent contract is certainly null and void from the beginning.

2. After a contract is confirmed to be null and void, according to the provision of Article 58 of Contract Law of PRC (effective as of October 1st, 1999), the property acquired as a result of the contract shall be returned; where the property can not be returned or the return is unnecessary, it shall be reimbursed at its estimated price. The party at fault shall compensate the other party for losses incurred as a result therefrom. If both parties are at fault, each party shall respectively be liable.

2.1 Therefore, if void is the contract entered into by and between your company and the PRC enterprise, your company is entitled to having the products returned or obtaining reimbursement where your products can not be returned or the return is unnecessary.

2.2 If the contract is void and your products could be returned, the substandard quality of the products, as claimed by the purchaser, will not be of any relevance. If the contract is void and your products could not be returned or the return is unnecessary, there will be of some relevance. The reimbursement you will be obtained might be affected.

2.3 If the contract is void due to the reason that the PRC enterprise violates the mandatory provisions as said above or its other fault, you may claim against the purchaser for losses concerned.

(admin)