[Title] Dispute over the Sales Contract between Shenyang Yu XX Tong Trading Co., Ltd. and Shan XX Machinery (Shenyang) Commercial Co., Ltd.

[Keywords] Civil Law / Sales Contract / Declaration of Intent / Rebate

【Key Points of Judgment】 The party asserting a claim in a lawsuit shall provide evidence to substantiate the facts upon which its claim is based, and the party opposing the claim shall likewise provide evidence to refute the facts upon which the opposing party’s claim is based. If, prior to rendering a judgment, a party fails to provide evidence or the evidence provided is insufficient to prove its factual assertions, that party bearing the burden of proof shall bear the adverse consequences.

【Basic Facts of the Case】 In 2015, YuX Company (Party A) and ShanX Company (Party B) entered into a Supply and Sales Contract, under which Party A authorized Party B to retail products designated by Party A at its stores on Zhongjie Street. The scope of products distributed by Party B included Samsung-branded televisions, refrigerators, washing machines, and household appliances supplied by Party A. The authorization period for distribution was from October 1, 2015, to October 1, 2016. The contract stipulated that Party B would enjoy the same product prices listed in Party A’s price list at the time of purchase, and Party B was required to comply with the price policies announced by Party A at the time. Article 8 of the contract, concerning the rights and obligations of Party B, provided in Paragraph (2), Item 3, that Party B should cooperate with Party A in carrying out advertising and promotional activities. Paragraph 8 further stipulated that any discounts, rebates, commissions, or incentives granted by either party in their economic transactions must be notified to the other party in writing and settled through the financial departments of both parties. If Party A’s employees violated the above provisions, they were entitled to file a complaint with Party A’s disciplinary inspection department. Article 9 of the contract outlined sales incentives: if Party B achieved an annual sales target of 10 million yuan, it would receive an incentive of 2%. Confirmation of sales data would be based on the confirmation slips issued by Party A. After signing the above contract, the two parties—YuX Company and ShanX Company—began cooperating as agreed. Under the cooperation arrangement, ShanX Company placed orders with YuX Company, which, after preparing the goods, delivered them to ShanX Company. Each order generated a “Payment Order Letter,” which detailed: ① the order amount, ② the basic rebate amount, ③ the total remaining balance from the previous period carried forward, ④ the remaining balance used in the current period, ⑤ the rebate amount generated by the current order, and ⑥ the rebate amount already earned. The amount receivable from the goods delivered equaled ① minus ② minus ③ minus ④ minus ⑤ minus ⑥. If the Payment Order Letter indicated any rebates or similar items, a corresponding “Prior Commercial Negotiation Agreement” would be attached to the letter. ShanX Company made payments to YuX Company according to the amounts recorded in the Payment Order Letters stamped by YuX Company. There was a dispute between the two parties regarding supplier codes [3776], which covered refrigeration and washing machine products, and supplier code [3777], which covered television products. Between September 23, 2015, and September 11, 2017, there were 31 supply orders under code [3776], and ShanX Company had paid a total of 9,848,985.63 yuan for these orders. Under code [3777], there were 56 supply orders, and ShanX Company had paid a total of 8,709,314.72 yuan for these orders.

Company YX believes that the rebate amount stipulated in the “Prior Consultation Agreement” is incorrect, and the “Payment Instruction Letter” is merely an instruction from Company YX requesting Company SX to pay for the goods; it does not reflect that the two parties have reached a rebate agreement. The Payment Instruction Letter was unilaterally prepared by Company SX based on the amount of payment that Company SX could make to Company YX for the current order, and therefore should not be recognized as a rebate. Consequently, Company SX should pay Company YX the outstanding portion of the contract payment. On the other hand, Company SX argues that the amount confirmed in the “Prior Commercial Consultation Agreement” and the “Payment Instruction Letter” matches the actual payment amount made by Company SX, which both parties have acknowledged. Thus, the rebate indeed exists and reflects the true intentions of both parties; there is no fact of “paying money in exchange for goods.”

【Judgment】 On January 30, 2019, the People's Court of Shenhe District, Shenyang City, issued a first-instance judgment dismissing the claim brought by Shenyang YuXXTong Trading Co., Ltd. After the judgment was pronounced, Shenyang YuXXTong Trading Co., Ltd. filed an appeal, arguing that the first-instance court had incorrectly found the facts regarding rebates and that ShanX Company should have borne the burden of proof concerning the rebate and promotional arrangements between the two parties; the original trial court had wrongly assigned the burden of proof to YuX Company. YuX Company had already submitted to the court evidence such as the “Delivery Detail Sheet,” proving that the amount of goods supplied by YuX Company to ShanX Company under supplier codes [3776] and [3777] had been fully established, thus fulfilling its burden of proof. The company requested that the first-instance judgment be reversed and that the case be retried and decided in accordance with the law. On April 20, 2019, the Intermediate People's Court of Shenyang City issued a judgment dismissing the appeal and upholding the original judgment.

【Reasoning of the Court】 The central issue in this case is whether the portion of the payment that YuX Company is seeking from ShanX Company is justified—that is, whether ShanX Company has paid the full amount due and whether YuX Company has fulfilled its burden of proof regarding its claims in this case.

The final judgment of the court holds that the Supply and Sales Contract signed between YuX Company and ShanX Company reflects the true intentions of both parties and is lawful and valid. Therefore, it can be confirmed that a sales contract relationship exists between the plaintiff and ShanX Company. During the trial, ShanX Company provided, in response to YuX Company’s claim, the corresponding “Payment Order Letter” accompanied by the “Prior Commercial Negotiation Agreement.” The “Payment Order Letter” contains detailed records of the quantity of goods supplied for each order, the amount of outstanding payments, the details of rebates utilized, and the final payment amount. The “Prior Commercial Negotiation Agreement” attached to the letter shows rebate amounts that are consistent with those recorded in the corresponding “Payment Order Letter.” Although YuX Company currently disputes the authenticity of both the signature and seal on the “Prior Commercial Negotiation Agreement,” it does not challenge the authenticity of YuX Company’s seal on the “Payment Order Letter.” Moreover, ShanX Company has fulfilled its payment obligations to YuX Company precisely according to the amounts specified in the “Payment Order Letter” as confirmed by YuX Company’s seal. Thus, it is evident that both YuX Company and ShanX Company have a clear and mutually agreed-upon understanding regarding the amounts of relevant deductions and rebates. Now, YuX Company, solely on the ground that it does not recognize the authenticity of the “Prior Commercial Negotiation Agreement,” seeks to deny the payment amount confirmed in the “Payment Order Letter” and demands that ShanX Company pay an additional portion of the goods’ price. However, YuX Company has failed to provide any other evidence to substantiate its claim, thereby failing to meet its burden of proof. Consequently, YuX Company’s claim lacks both factual and legal basis.

With regard to YuX Company’s appeal challenging the authenticity of the business-specific seal affixed to the “Payment Order Letters” provided by ShanX Company in the first-instance proceedings, ShanX Company submitted to the court two “Payment Order Letters”—dated September 22, 2016, and April 3, 2017—along with a “Prior Commercial Negotiation Agreement.” Both documents have been fully performed by both parties without any objection. These documents serve to prove that YuX Company had indeed used the business-specific seal in their transactions. The “Payment Order Letters” were accompanied by the prior negotiation agreement, which also bore the business-specific seal of YuX Company, thereby mutually corroborating that the business-specific seal belonged to YuX Company and had been used by both parties during their negotiations and confirmations of transaction terms and amounts. During the court’s evidentiary examination, YuX Company raised objections to the evidence on grounds of authenticity, relevance, and legality. While YuX Company acknowledged that the financial-specific seal affixed to the “Payment Order Letters” was indeed its own seal and had been stamped by YuX Company itself, it disputed that the business-specific seals affixed to these two “Payment Order Letters” had been stamped by YuX Company. Moreover, YuX Company stated that it did not know who had affixed the seal or when it had been affixed. Furthermore, YuX Company pointed out that numerous “Payment Order Letters” had been issued throughout the performance of the contract between YuX Company and ShanX Company; thus, these two pieces of evidence alone could not establish that the business-specific seal was an official seal regularly used by YuX Company. All “Payment Order Letters” issued during the course of the transactions between YuX Company and ShanX Company had been provided by ShanX Company to YuX Company, and after YuX Company affixed its financial-specific seal to them, they were returned to ShanX Company. ShanX Company retained custody of all “Payment Order Letters.” Without the financial-specific seal, ShanX Company would have been unable to make payments to YuX Company based on those “Payment Order Letters.” The “Payment Order Letters” merely served as instructions for payment. Even if these two “Payment Order Letters” were genuine, they would only demonstrate that ShanX Company’s financial personnel did not recognize the business-specific seal but instead recognized only the financial-specific seal that had been filed with the public security authorities. ShanX Company was aware that the business-specific seal was not an official seal of YuX Company and therefore lacked legal validity.

The court’s final judgment holds that: Since the two “Payment Order Letters” and the accompanying “Prior Commercial Negotiation Agreement” attached thereto are financial documents that have been fully performed by both parties and are relevant to the present case, the court recognizes the evidentiary value of these documents. Furthermore, during the trial, both parties confirmed that the facts ascertained by the first-instance court were correct; therefore, this court affirms the findings of fact made by the first instance. In this case, YuX Company filed a lawsuit requesting ShanX Company to pay the outstanding货款. According to Article 64 of the Civil Procedure Law of the People’s Republic of China, “A party shall be responsible for providing evidence to support its claims.” Thus, in this case, YuX Company bears the burden of proof. However, the evidence submitted by YuX Company to the first-instance court consisted only of several “Delivery Detail Sheets.” These “Delivery Detail Sheets” listed only the names, quantities, and models of the goods, but did not specify unit prices or the total amount of the货款. Consequently, they fail to prove whether ShanX Company owes YuX Company any货款 or the exact amount of such debt. ShanX Company, on the other hand, argued that it does not owe YuX Company any货款 and presented to the court the “Payment Order Letters” generated during their transactions, together with the accompanying “Prior Commercial Negotiation Agreement.” Each “Payment Order Letter” contains detailed records of the supply quantity for each order, the amount transferred, the details of any rebates utilized, and the final payment amount. The “Prior Commercial Negotiation Agreement” attached to these letters shows rebate amounts that correspond exactly to those recorded in the respective “Payment Order Letters.” Although YuX Company disputes the authenticity of the signatures and seals on the “Prior Commercial Negotiation Agreement,” particularly the business-specific seal, it does not challenge the authenticity of the financial seal and other signatures on the “Payment Order Letters.” Moreover, ShanX Company has already fulfilled its payment obligations to YuX Company based on the final payment amounts indicated in the “Payment Order Letters” duly signed and sealed by YuX Company. Therefore, ShanX Company has successfully discharged its burden of proof regarding its defense. By contrast, the evidence provided by YuX Company is insufficient to establish that ShanX Company owes it any货款. Accordingly, the original court’s decision dismissing YuX Company’s claim was entirely proper.

Regarding the issue raised by Yu X Company that the business-specific seal bearing the name of Yu X Company affixed to certain “Payment Order Letters” and “Prior Commercial Negotiation Agreements” submitted by Shan X Company in the first instance was neither affixed by Yu X Company nor used by it, and that this fact contradicts the truth: In the second instance, Shan X Company provided to the court the “Payment Order Letter” dated September 2, 2016, along with the attached “Prior Commercial Negotiation Agreement,” both of which had been fully performed by both parties without any objection. Yu X Company did not dispute that the corresponding payment had indeed been made. However, both the “Payment Order Letter” and the attached “Prior Commercial Negotiation Agreement” bore the business-specific seal bearing the name of Yu X Company. Therefore, the court could only conclude that Yu X Company had, at some point during the transaction, used this business-specific seal. Consequently, the court rejected Yu X Company’s appeal on this ground. As for Yu X Company’s argument that the contract between the two parties stipulated that any concessions, rebates, or incentives in their economic dealings must be notified to the other party in writing, and that Shan X Company should bear the burden of proof regarding the rebate and promotional arrangements between the two parties: Upon examination, Shan X Company had already submitted in the first instance several “Payment Order Letters” and “Prior Commercial Negotiation Agreements” generated during their transactions. These documents contained detailed records of the supply quantity for each order, the amount of funds carried forward, the use of rebates, and the final payment amount—all of which were duly signed and confirmed by both parties. Therefore, this court does not accept Yu X Company’s appeal on this point.

[Relevant Statute] Article 90 of the “Interpretation by the Supreme People’s Court on the Application of the Civil Procedure Law of the People’s Republic of China” provides: “A party shall provide evidence to substantiate the facts upon which its claim is based or to rebut the facts upon which the opposing party’s claim is based, unless otherwise provided by law.”

Before a judgment is rendered, if a party fails to provide evidence or the evidence provided is insufficient to substantiate its factual claims, the party bearing the burden of proof shall bear the adverse consequences.

[Lawyer’s Viewpoint] The key issue in this case is whether the rebate arrangement between Shan X Company and Yu X Company actually existed, as well as the allocation of the burden of proof between the two parties. The “Payment Order Letter” and the “Prior Commercial Negotiation Agreement” (i.e., the rebate agreement) signed by Shan X Company and Yu X Company both reflect the true intentions of both parties, are lawful and valid, and the fact that both parties have indeed provided rebates is genuine. Shan X During the first-instance trial, the company has submitted to the court, based on the amount claimed by Yu X Company, documents for each order under items 【3776】 and 【3777】. The “Payment Order Letter,” the “Prior Commercial Negotiation Agreement,” and payment vouchers and invoices corresponding to each order amounting to the sum stated in the “Payment Order Letter” together form a complete chain of evidence sufficient to prove the existence of the rebates between the two parties. Shan X Company has made payments based on the prices calculated for each transaction with Yu X Company and has not defaulted on any payments owed to Yu X Company. Regarding Yu X Company’s claim that the agreement it signed… The “Payment Order Letter,” bearing the company’s official financial seal at the request of Shan X Company, does not, by itself, suffice to establish that the two parties have reached an agreement on rebates—this assertion is incorrect. As an independent legal entity with many years of experience in commercial services, Yu X Company was fully aware of the implications of affixing the official financial seal and the resulting legal consequences; therefore, it should bear the corresponding legal responsibilities. The act of Yu X Company affixing the official financial seal constitutes its acknowledgment of the contents of the “Payment Order Letter.” Moreover, the “Payment Order Letter” explicitly records the details of the rebate arrangement between the two parties. Consequently, the agreement on rebates reflects the true intentions of both parties and should be legally binding.

As for the claim made by Yu X Company that the business-specific seal affixed to the “Prior Commercial Negotiation Agreement” was neither affixed by Yu X Company nor one it normally uses, and that this claim is contrary to the facts: During its long-term cooperation with Shan X Company on 15 projects, Yu X Company consistently affixed its business-specific seal to the “Prior Commercial Negotiation Agreements.” Moreover, in other projects as well, both parties followed the same procedure as in the present case and have already completed the relevant orders without Yu X Company raising any objections. At the same time, Yu X Company has also, on other “Payment Order Letters,” affixed both its business-specific seal and its finance-specific seal. Furthermore, during the trial proceedings, Yu X Company itself acknowledged the authenticity of the finance-specific seal on its “Payment Order Letters.” Therefore, it can be established that the business-specific seal affixed by Yu X Company to the “Prior Commercial Negotiation Agreement” is a seal that Yu X Company has used and recognized in its commercial dealings. Meanwhile, the rebate amounts confirmed in each “Prior Commercial Negotiation Agreement” are consistent with the rebate amounts confirmed in the corresponding “Payment Order Letters.” Consequently, the signing of the “Prior Commercial Negotiation Agreement” truly reflects Yu X Company’s genuine intent, and the rebate amounts should therefore be recognized.

During the trial, Shan X Company has provided, for each order under items [3776] and [3777] claimed by Yu X Company, a corresponding “Payment Order Letter” accompanied by a “Prior Commercial Negotiation Agreement.” The “Payment Order Letters” contain detailed records of the supply quantity for each order, the settlement amount, the details of any rebates utilized, and the final payment amount. Moreover, the amounts of rebates indicated in the attached “Prior Commercial Negotiation Agreements” are consistent with those specified in the respective “Payment Order Letters.” In addition, for each order and each “Payment Order Letter,” Shan X Company has also submitted a series of supporting documents, including the “Prior Commercial Negotiation Agreement,” payment vouchers, and invoices, to substantiate the existence of the rebates. Shan X Company made payments based on the amounts confirmed by both parties, thereby fully fulfilling its payment obligations and demonstrating that there was no default in payment whatsoever. Shan X Company has thus fulfilled its burden of presenting evidence in response to Yu X Company’s claims; however, Yu X Company has failed to submit any further evidence to support its allegations. Consequently, Yu X Company must bear the adverse consequences of failing to meet its evidentiary burden.