[3] Zhong Qingguang v. Lushan Real Estate Company over false advertising and fraud in property sales.

[Lead Attorney: Zhiming Law Firm] I. Case Review

原告钟庆光于1999年3月认购了被告深圳庐山置业有限公司开发的“嘉惠新城”嘉祥阁11楼C单元房产。原告之所以购买“嘉 祥阁”C单元的房产，是因为C单元位于整栋楼的西北角，推窗而望是深圳人引为自豪的宽阔、整洁、间以绿草、红花的深南大道，还有被称为“城市之肺”的 800米绿化带。然而这一切景观仅是被告的虚假宣传，实际上并不存在。“嘉惠新城”北面的土地属于另一个房产开发商，将会建成高层住宅楼遮挡视线，但被告 隐瞒这些情况，在宣传材料中作虚假的宣传。被告的工作人员也多次作出保证，并拿出售楼书和模型进行说明。原告在被欺骗的情况下违背真实意思认购了“嘉惠新 城”嘉祥阁11楼C单元。在订购楼房之前，被告要求原告先缴2万元的定金，10天后签订认购书时又缴了10%的购楼款4万元，又过了两天才通知原告去签订 合同书。此时原告发现合同中除了第六条规定：“乙方(即原告)如未按本合同第五条规定之办法按期付款，甲方(即被告)有权要求乙方支付违约 金，——乙方给付的楼款额不足应付款的50%的，甲方可要求乙方支付楼款总额30%的违约金，”此外还附加了多条不公平的条款。原告当时就指出这 些条款不公平，应协商确定，但被告不同意，并指出如果不签合同，前面已交的6万元将不予退回。面对如此不公平的待遇，原告仍认为只要楼房能满足自己的需 要，也就不计较了，无奈的签署了这份合同，并按合同的要求交齐了30%首期款人民币162133元。

In May 1999, a wall was erected on the vacant land north of Jiaxiang Pavilion in preparation for the construction of a high-rise building, and the beautiful view the plaintiff had expected to see from the window would become the windows of a high-rise. Only then did the plaintiff realize they had been deceived, and they demanded the defendant accept the return of the property, rescind the purchase contract, and refund the down payment already paid. The defendant not only refused to accept the return of the property but also, citing the extremely unfair Clause 6 of the contract, refused to return the plaintiff's already-paid initial purchase payment of RMB 162,133. On August 29, 2000, the defendant sold the property sold to the plaintiff, namely Unit 11C, Jiaxiang Pavilion, Jiahuixin City, to a third party. With no recourse, the plaintiff entrusted Director Attorney Wang Tengfeng to uphold their rights. After accepting the case, Zhiming Law Firm immediately sent a lawyer's letter to the other party for negotiation, but no resolution was reached. Thus, the plaintiff had no choice but to file a lawsuit with the Shenzhen Futian District People's Court, requesting the court to rule:

1. The judgment rescinds the "Shenzhen Real Estate Contract" signed with the defendant;

2. Adjudge that the defendant return the property payment of RMB 162,133 already paid by the plaintiff, along with interest;

3. Order the defendant to bear the litigation costs of this case.

II. Judgment

Judgment of First Instance by the Futian District People's Court of Shenzhen on November 9, 2000 [(2000) Shenfu Fa Fang Chu Zi No. 1016]

It is stated that:

The housing purchase contract signed by the plaintiff and the defendant represented the genuine intent of both parties, did not violate any laws or regulations, and should be lawfully confirmed as valid. After the plaintiff paid a portion of the purchase price to the defendant, the plaintiff failed to continue performing its payment obligations as agreed, and the defendant was entitled to assert its lawful rights against the plaintiff through legal procedures; however, the defendant was not entitled to dispose of the purchase price already paid by the plaintiff without authorization. On the contrary, the defendant, without terminating the contract, resold the property already sold to the plaintiff to a third party, thereby impeding the plaintiff's continued performance of the contract. The plaintiff's claim for return of the purchase price and interest is consistent with legal provisions, and this court hereby upholds it.

The court upheld all of Attorney Wang's claims, ruling in accordance with the law to rescind the "Shenzhen Real Estate Contract" signed by both parties, and ordered the defendant to refund the plaintiff's purchase payment of RMB 162,133 plus interest, and to bear all litigation costs of this case.

III. Case Analysis

Regarding the circumstances of this case, the plaintiff's representative believes that:

(1) The process by which the defendant entered into the contract with the plaintiff was a malicious fraudulent process carefully orchestrated by the defendant.

1. The defendant made false advertisements before entering into the contract, inducing the plaintiff to book the property. As the developer, the defendant was naturally well acquainted with the planning of Jiahui New City and its surroundings, knowing full well that the land north of Jiahui New City belonged to another party and would be developed into new buildings that would obstruct the view. Nevertheless, the defendant still vigorously touted in its promotional materials that "opening the window reveals an open 800-meter permanent green belt, lush and verdant, forever unobstructed." The defendant's staff also repeatedly made false assurances such as "the north side will be a green belt and a bus station," and produced the sales brochure and model for illustration. Under these circumstances, the plaintiff developed a mistaken understanding of the true condition of Jiahui New City and subscribed to Unit C on the 11th floor of Jiaxiang Pavilion against their true intentions.

2. After the defendant's false advertising temporarily succeeded, it further exploited the plaintiff's goodwill and gradually coerced the plaintiff into making payments during the process of signing the contract. When the plaintiff was deceived into deciding to purchase the property, the defendant stipulated that the plaintiff must first pay a deposit of 20,000 yuan before signing the letter of intent, and then, when signing the letter of intent 10 days later, required the plaintiff to pay 10% of the purchase price, amounting to 40,000 yuan. Without having seen the contract, the plaintiff had already made two payments totaling 60,000 yuan. Only after the defendant produced the extremely unfair sales contract did the plaintiff learn that the land use right for Jiahui New City was only 50 years, that the date for delivery of the property had been changed from early May to the end of July, and that the contract also contained unfair clauses such as requiring the plaintiff to pay a penalty of up to 30% in the event of breach. As for the landscape, the defendant continued to deceive the plaintiff.

3. In May 1999, the plaintiff discovered that a high-rise building was to be constructed to the north of Jiaxin New City, which would block the northern view and was inconsistent with the defendant's prior representations and commitments. The plaintiff therefore requested negotiation for the return of the purchased unit. Subsequently, without notifying the plaintiff, the defendant resold the unit reserved by the plaintiff and appropriated the plaintiff's down payment. It is thus evident that the defendant included an unusually high 30% liquidated damages clause in the contract for the purpose of continuing to coerce the plaintiff with that clause after the fraudulent conduct was exposed, in order to achieve illegal profit-making.

A contract concluded by the defendant by means of fraud is a contract subject to modification or revocation.

According to the provisions of Article 54 of the Contract Law of the People's Republic of China, a contract may be modified or revoked under any of the following circumstances…

(3) The defendant shall bear civil liability after the rescission of the contract.

In accordance with the provisions of Article 58 of the Contract Law of the People's Republic of China, "After a contract is invalidated or revoked, the property acquired by either party under the contract shall be returned. If it is impossible or unnecessary to return the property, compensation shall be made at an estimated price. The party at fault shall compensate the other party for the losses incurred as a result…

(4) Proposing a litigation claim for rescission of the contract can better protect the plaintiff's legitimate rights and interests.

The plaintiff's attorney, after taking on this case, carefully analyzed the entire context of the matter and concluded that while the case could either seek a court judgment to terminate the "Shenzhen Real Estate Sales Contract" entered into with the defendant, or request a court ruling to rescind the contract, in light of the actual circumstances of the case, rescinding the contract would better protect the plaintiff's lawful rights and interests. Although termination and rescission of a contract are both systems for the extinguishment of contracts, the two are not the same. Termination of a contract refers to the act by which, after a contract has been validly established, when the conditions for termination are met, the contract is extinguished either ab initio or only prospectively, based on the expression of intent of one or both parties. A rescindable contract refers to a contract that, due to the insincerity of the parties' expressions of intent at the time of formation, the law permits the person holding the right of rescission to render the already effective contract null and void by exercising that right. The main differences between termination and rescission of a contract are as follows: First, in terms of scope of application, the scope of rescission is relatively broad, applying not only to contracts lacking valid essential elements, but also to cases involving defective expressions of intent and civil conduct; termination, however, applies only to the premature extinguishment of validly established contracts. Second, in terms of the grounds for occurrence, the grounds for rescission are directly prescribed by law, whereas termination may be based on either legal provisions or agreement between the parties. Third, in terms of legal effect, rescission always has retroactive effect, and the rescinded civil conduct is void from the very beginning; termination, by contrast, generally has no retroactive effect, and only has retroactive effect where the parties have specifically agreed, or where there are special legal provisions, or in cases of termination of non-continuing contracts due to breach.

In summary, the defendant's fraudulent conduct was evident, and they deliberately inserted various extremely unfair clauses into the contract, which were manifestly inequitable to the plaintiff. The plaintiff's attorney, Attorney Zhi Ming, based on the facts of the case, put forward legal claims most favorable to the plaintiff's interests. The court rendered a judgment in accordance with the law, and the plaintiff recovered the home purchase payment and interest losses, thereby safeguarding the plaintiff's legitimate rights and interests as well as the fair order of the economic market.

(Compiled and commented by Zhang Qingping)

Guangdong Zhiming Law Firm

Office

January 19, 2001