Court in Eastern China Rules Real Estate Agent Must Refund 20,000 Yuan Deposit After Unauthorized Price Change
Court in Eastern China Rules Real Estate Agent Must Refund 20,000 Yuan Deposit After Unauthorized Price Change
CASE OVERVIEW
A civil court in Eastern China has ordered a real estate agency to return a 20,000 yuan意向金 (intention deposit) to two homebuyers after the agent exceeded the buyers’ authorized purchase price when negotiating with the seller. The judgment, issued in January 2011, clarifies the limits of an agent’s authority under a house purchase意向书 (letter of intent) and reinforces the principle that an agent cannot bind a principal to terms not expressly approved. The dispute arose from a residential property transaction in Eastern China, with the purchase price set at 2,700,000 yuan.
CASE BACKGROUND AND FACTS
On September 24, 2010, the plaintiffs, Mr. Qin and Ms. Pan, wished to purchase a residential unit located in Eastern China. They engaged the defendant, a real estate agency, to facilitate the transaction. At the agency’s request, the plaintiffs signed a House Purchase Letter of Intent. Under this document, the plaintiffs authorized the agency to negotiate with the property owner at a total price of 2,700,000 yuan. The plaintiffs also paid an intention deposit of 20,000 yuan to the agency as a show of good faith. Later that same day, without obtaining the plaintiffs’ consent, the agency entered into a separate letter of intent with the property owner at a total price of 2,720,000 yuan. On September 25, 2010, the plaintiffs formally notified the agency that they were terminating the negotiation for the property. They repeatedly demanded the return of the 20,000 yuan deposit, but the agency refused. The plaintiffs then filed a lawsuit seeking the return of the deposit.
COURT PROCEEDINGS AND EVIDENCE
The case was accepted by the court on December 1, 2010, and a public hearing was held on December 20, 2010. The plaintiffs presented the House Purchase Letter of Intent as evidence, demonstrating that they had authorized a purchase at 2,700,000 yuan and that the agency had received the 20,000 yuan deposit. The agency argued that it had properly transferred the deposit to the property owner as a定金 (earnest money) and that the deposit was now held by the seller. The agency submitted the letter of intent signed with the seller and a receipt showing the seller’s acknowledgment of the 20,000 yuan. The court admitted the plaintiffs’ evidence without objection but rejected the agency’s receipt as irrelevant to the dispute between the plaintiffs and the agency.
COURT FINDINGS AND JUDGMENT
The court found that the House Purchase Letter of Intent was a valid contract reflecting the true intentions of both parties. The plaintiffs had clearly instructed the agency to negotiate at a price of 2,700,000 yuan. The agency, however, negotiated and signed an agreement with the seller at 2,720,000 yuan. The agency failed to provide any evidence that the plaintiffs had approved this higher price. Therefore, the court held that the conditions required for the letter of intent to become binding had not been met. Since the authorized transaction did not materialize, the agency had no right to retain the deposit. The court ordered the agency to return the full 20,000 yuan to the plaintiffs within ten days of the judgment taking effect. The court also ordered the agency to bear the reduced court costs of 150 yuan.
KEY LEGAL PRINCIPLES
The court relied on Article 58 of the Contract Law of the People’s Republic of China. This provision states that when a contract is invalid or void, or when the conditions for its performance are not fulfilled, any property obtained under the contract must be returned. In this case, the intended transaction did not proceed because the agent acted beyond its authority. The deposit, held by the agent for a specific purpose, could not be retained once that purpose failed. The ruling underscores the fiduciary duty of an agent to act strictly within the scope of authority granted by the principal. Any deviation, especially on a material term like price, renders the agent’s actions unauthorized and requires restitution.
PRACTICAL INSIGHTS
This case serves as a cautionary tale for both homebuyers and real estate agents. Buyers should clearly document the exact terms of their offer in writing and insist that any changes be approved in writing before the agent proceeds. Agents must understand that exceeding a client’s authorized price without express consent is a breach of duty that can result in financial liability. The ruling also highlights the legal distinction between an意向金 (intention deposit) and a定金 (earnest money). An intention deposit remains the property of the buyer until a binding contract is formed, while earnest money is typically forfeited if the buyer defaults. Here, because no binding agreement was reached at the authorized price, the deposit was not converted into earnest money.
LEGAL REFERENCES
Contract Law of the People’s Republic of China, Article 58.
DISCLAIMER
This article is for informational purposes only and does not constitute legal advice. Laws and regulations may vary by jurisdiction. Readers should consult a qualified legal professional for advice tailored to their specific circumstances.