Appeals Court Orders Property Agency to Return 10,000 Yuan Deposit in Real Estate Purchase Dispute

Real estate transactions involving intermediary agents create fiduciary obligations that require the agent to fully inform their client of material facts affecting the property. When an agent fails to disclose critical information—such as existing encumbrances on the target property—the client may have grounds to demand return of any deposits paid. A recent provincial appellate ruling addressed precisely this situation, resulting in an order for a property services company to return 10,000 yuan in earnest money to a prospective buyer.

The dispute originated from a property purchase arrangement executed in August 2008. Ms. Zheng had engaged Sichuan Eden City Property E-Commerce Co. as her agent to assist in acquiring a residential unit located on the third floor of a designated building. The agreed purchase price was 480,000 yuan. Upon signing the agency agreement, Ms. Zheng paid 10,000 yuan as a deposits—a good faith payment to demonstrate serious intent and secure the transaction.

The agency agreement specified that the earnest money would be converted to a purchase deposit once the agent successfully negotiated a preliminary purchase agreement with the property owner. The agreement set a deadline of September 1, 2008, for completing the three-party purchase contract. Should the property owner fail to complete the sale, the agent would refund the earnest money without additional charges.

Following signing, the agent proceeded to negotiate with the property owner, Ms. Liu, who held full ownership documentation. A preliminary agreement was executed on September 2, 2008, with the property owner receiving the 10,000 yuan deposit and providing her property title documents to the agency for safekeeping. However, shortly thereafter, Ms. Zheng's attorney sent formal notice to the agency alleging multiple violations—including that the property was encumbered by a mortgage that had not been disclosed at the time of signing, and that the seller had been unavailable during the contract deadline period, preventing timely execution of the three-party agreement.

The matter proceeded to litigation. At trial, the first-instance court found in favor of Ms. Zheng, determining that the agency agreement should be rescinded due to the plaintiff's material misrepresentation regarding the property's encumbrance status. The court ordered Eden City to return the 10,000 yuan earnest money.

The company appealed, arguing that the property had been properly disclosed as encumbered and that this information had been provided to Ms. Zheng. They contended the earnest money should not be returned because it had been transferred to the property owner rather than retained by the agency.

The appellate court conducted an independent review and reached a different legal conclusion regarding the rescission claim. The court found insufficient evidence that the agency had knowingly concealed the encumbrance at the time of signing, and determined that Ms. Zheng's own decision to enter the agreement was freely made. Accordingly, the rescission claim was dismissed on appeal.

However, the appellate court affirmed the requirement that the earnest money be returned. The key finding was that Ms. Zheng had validly exercised her right to terminate the agency relationship when the undisclosed encumbrance became known, and the agency had not objected to this termination. Under contract law principles governing the unwinding of terminated agreements, any payments made under the contract must be returned to the originating party. The agent's argument regarding where the funds had been ultimately disbursed was rejected—the agent bore responsibility for ensuring proper handling of client funds regardless of downstream allocations.

The final judgment affirmed the return of the 10,000 yuan earnest money to Ms. Zheng and dismissed her additional claims. Court costs for both proceedings were assessed against the property services company. This decision represents the final resolution of the matter, carrying no further appeal rights.

Disclaimer: This article presents a summarized account of a civil court ruling for educational and informational purposes only. It does not constitute legal advice, and individuals facing similar circumstances should consult a qualified attorney licensed in their jurisdiction for guidance specific to their situation.