by Dan Harris in 'China Law Blog'
If you want to greatly increase your chances of being able to enforce your contract with your Chinese counterparty, you should do the following (You should do a lot more than this, both within and outside your contract, but I am limiting this post to just those things directly related to being able to enforce the contract and its terms.):
This post is going to focus on the signing/sealing requirement, because it matters and because American (that includes Canadian) and British companies seem to get this wrong way too often.
In many countries, including the United States, apparent authorityis a pretty broad concept. Grossly simplified, it means that if an employee reasonably looks as though he or she has authority to enter into a specific contract on behalf of the company, the company will be bound to that contract. Here is an example. At my law firm, our legal assistants/paralegals are always ordering office supplies from Office Depot in fairly small increments— maybe $50 to $150 at a time. And our law firm always pays these Office Depot bills. If my law firm were to refuse to pay a $75 bill tomorrow by claiming that we had never authorized the Office Depot order, Office Depot could sue us and they would surely win. They would win because we have clearly let the outside world believe that our legal assistants and paralegals have authority to make such orders on our law firm's behalf. But what if one of our legal assistants ordered $50,000 in computer equipment sent to his or her house? Would we have to pay? Almost certainly not.
But that is the United States. China has a much more limited apparent authority concept and it can be so prone to dispute that you may better off pretending that it does not exist.
For written contracts in China to be effective, one of the following must be true:
Chinese companies are notorious for trying to get out of contracts by claiming they never actually signed them or that they were signed without the proper authority and so if your contract is big enough and important enough, you should consider doing all of the following to minimize even further the likelihood of the Chinese company seeking to get out of your contract:
What do you think?
Dan Harris is founder of the Harris & Moure law firm, a boutique international law firm focusing on small and medium sized businesses that operate internationally. China is the fastest growing area for the firm. Dan writes ChinaLawBlog.com as a source of China legal and business information.