Court Upholds House Sale Validity for CNY 26,800

A court in Southern China City has ruled that a verbal agreement to sell a house for a higher price does not invalidate a written contract that recorded a lower figure to reduce taxes. The case involved a dispute between two relatives over the sale of a family home, where the buyer later undertook redevelopment of the property. The court dismissed the seller’s claim that the agreement was void due to alleged fraud and mental fatigue.

The plaintiff, Ms. Li, and the defendant, Mr. Wang, are distant relatives. Ms. Li owned a two-storey wooden house with a floor area of 64.39 square meters in Southern China City. She lived and worked in a distant province, and the house had been occupied by Mr. Wang’s father for several years. In mid-2011, Mr. Wang and his father contacted Ms. Li multiple times by phone, expressing interest in buying the house and informing her that neighboring properties were about to be redeveloped. Ms. Li traveled back to Southern China City in late June 2011 to discuss the sale.

On the following day, both parties voluntarily agreed on a sale price of CNY 26,800. However, to reduce taxes, they instructed a local community clerk, Mr. Fan, to draft a written purchase agreement stating a price of only CNY 16,800. The agreement was signed by both parties, several community officials, and Mr. Fan. Mr. Wang paid Ms. Li CNY 16,800 on the spot and issued a promissory note for the remaining CNY 10,000, to be paid within five years. Ms. Li handed over the property certificate and keys. Immediately after signing, Mr. Wang entered into a redevelopment contract with a builder, Mr. Hu, agreeing that the builder would return to him a new unit of the same area after construction.

During the trial, both parties presented evidence and testimony. The court examined the written purchase agreement, the promissory note, the property certificate, and the redevelopment contract. Several witnesses, including the clerk Mr. Fan, testified in court. Ms. Li argued that she was exhausted from travel and not in a clear state of mind when signing, and that Mr. Wang had concealed information about the redevelopment plans. However, she provided no supporting evidence for these claims. The court found that her travel records and certain witness statements had no direct bearing on the case and were therefore not accepted.

The court held that the purchase agreement was a voluntary expression of the parties’ true intentions, reached after multiple discussions. Under relevant law, a contract is valid as long as it does not violate mandatory legal provisions. Although the written price of CNY 16,800 was inaccurate, the underlying transaction for CNY 26,800 was genuine and supported by the promissory note. The court noted that deliberately understating the price to avoid taxes is improper and may lead to administrative penalties, but such a practice does not automatically render the entire agreement void.

The court reasoned that the key legal issue was whether consent was freely given. Ms. Li failed to prove any fraud, coercion, or incapacity. The fact that Mr. Wang proceeded with redevelopment before registering the property transfer was an irregularity, but it did not affect the validity of the sale contract. The court emphasized that the contract was binding under the principle of pacta sunt servanda. It therefore rejected Ms. Li’s request to void the agreement and return the property.

In its final judgment, the court dismissed all of Ms. Li’s claims and ordered her to bear the litigation costs. The ruling underscores that in property transactions, written agreements reflecting a lower price to avoid taxes are not automatically invalid, provided the true price is documented elsewhere and both parties acted voluntarily. Buyers and sellers should be aware that such tax-avoidance tactics may expose them to regulatory penalties, but the underlying sale remains enforceable. This case also highlights the importance of presenting clear evidence when alleging mental incapacity or fraud.

Disclaimer: This article is for informational purposes only and does not constitute legal advice.