Meaning
Provision detailing the execution of the deposit rule specifies the conditions under which a payment is forfeited or doubled. When a contract is terminated due to a breach of duty, prc civil code article 587 dictates whether the funds stay with the seller or return to the buyer with a penalty. This article applies only to cases where the failure to perform prevents the fundamental purpose of the agreement from being realized.
Remedy Mechanism
Balancing the interests of both parties is the goal of this statutory penalty system. If the payer fails to perform, the receiver keeps the money as compensation under prc civil code article 587 without further proof of loss. Conversely, if the receiver is the party at fault, they are obligated to pay back the original sum plus an equal amount as a fine.
Performance Failure
Minor delays or insignificant defects in the goods do not usually trigger the severe consequences of the deposit rule. Application of prc civil code article 587 requires a clear refusal to perform or a breach so serious that the contract cannot continue. This high threshold prevents companies from using the deposit rule as a weapon for small administrative errors.
Liability Balance
Mutual obligations are enforced by this article to ensure that both the buyer and the seller have a financial stake in the success of the transaction. Use of prc civil code article 587 provides a clear exit path for the non breaching party when a supplier or buyer disappears. It remains the most frequently cited article in Chinese litigation involving cancelled purchase orders.
