Property Buyer Awarded 222,000 Yuan in Home Sale Dispute After Seller Default

Property Buyer Awarded 222,000 Yuan in Home Sale Dispute After Seller Default

Case Overview
A buyer in Eastern China successfully sued a seller for breach of contract after the seller unilaterally stopped a home sale transaction. The court ordered the seller to return the deposit and pay reduced违约金 (liquidated damages) totaling 282,000 yuan. The case highlights the enforceability of real estate contracts and the court’s power to adjust excessive liquidated damages clauses.

Case Background and Facts
In September 2010, Mr. Tan agreed to buy a residential property from Ms. Chen for 2.22 million yuan. The property was located in Eastern China. Mr. Tan paid a 60,000 yuan deposit at signing and placed additional funds into a supervised bank account as required. He also obtained a mortgage pre-approval for 1.55 million yuan from a bank. The property was under mortgage, and the contract required Ms. Chen to authorize a third-party guarantee company to handle loan repayment and title transfer.

On October 25, 2010, Ms. Chen sent a stop-sale notice to the guarantee company, citing new real estate policies and personal reasons. The next day, she demanded the return of her notarized authorization documents and terminated all loan and title processing. Mr. Tan had already paid 5,300 yuan in guarantee fees and 300 yuan in notary fees. He then sued for the return of his deposit and payment of liquidated damages equal to 20 percent of the sale price, or 444,000 yuan.

Court Proceedings and Evidence
The case was heard in a district court in Eastern China under ordinary procedure with a three-person panel. Mr. Tan presented the sales contract, a bank supervision agreement, a deposit receipt, a mortgage commitment letter, bank payment records, notary invoices, guarantee fee receipts, the stop-sale notice, and the confirmation letter from Ms. Chen. Ms. Chen and her husband, Mr. Li, who was joined as a third party, argued that the contract was invalid because the property was marital property and Ms. Chen lacked authority to sell it alone. The real estate agency, also a third party, supported the contract’s validity.

Evidence showed that Ms. Chen purchased the property in January 2005, and the title deed issued in April 2006 listed only her name. She married Mr. Li in February 1999. The court confirmed these facts through testimony and documentary evidence.

Court Findings and Judgment
The court held that the sales contract reflected the true intentions of both parties and did not violate any mandatory laws or regulations. It was therefore valid and binding. The court emphasized that Mr. Tan reasonably relied on the public land registry, which showed Ms. Chen as the sole registered owner. The argument by Ms. Chen and Mr. Li that the contract was void due to lack of spousal consent was rejected as legally unfounded.

Mr. Tan had fully performed his obligations by paying the deposit, depositing the down payment, and obtaining mortgage approval. Ms. Chen breached the contract by stopping the loan repayment process, making completion impossible. Under the contract, Mr. Tan was entitled to terminate and seek liquidated damages. However, the court found the agreed 20 percent penalty (444,000 yuan) excessively high compared to Mr. Tan’s actual losses. Applying the principle of fairness, the court reduced the damages to 10 percent of the sale price, or 222,000 yuan. The court also ordered Ms. Chen to return the 60,000 yuan deposit.

The court dismissed Mr. Tan’s claim for the higher amount. Ms. Chen was ordered to pay court costs of 8,840 yuan, with Mr. Tan bearing 3,000 yuan and Ms. Chen bearing 5,840 yuan. Preservation fees of 3,040 yuan were also assigned to Ms. Chen.

Key Legal Principles
The court applied the principle of good faith and the binding force of contracts. A valid contract must be performed fully and in good faith. Breach of contract entitles the non-breaching party to seek damages. Liquidated damages clauses are enforceable but subject to judicial adjustment if they are grossly disproportionate to actual harm. The court also confirmed that a buyer may rely on the public property register, and a seller cannot defeat a contract by claiming lack of spousal consent when title is held solely in the seller’s name.

Practical Insights
This case illustrates that real estate buyers should ensure all contract terms are clear and that they document every payment and approval step. Sellers cannot unilaterally withdraw from a valid contract without facing liability. However, courts will not automatically enforce penalty clauses that are excessive; they will adjust them to a reasonable level based on actual losses. Buyers should be prepared for the possibility that a court may reduce agreed damages. The case also shows that marital property claims do not automatically invalidate a contract if the title is in one spouse’s name alone.

Legal References
Contract Law of the Peoples Republic of China: Article 60, Paragraph 1; Article 107. Civil Procedure Law of the Peoples Republic of China (2007 Revision): Article 64, Paragraph 1.

Disclaimer
This article is for informational purposes only and does not constitute legal advice. Consult a qualified attorney for specific legal matters.