[3] Zhong Qingguang v. Lushan Real Estate Company over false advertising and fraud in property sales.
[Lead Lawyer: Wang Tengfeng] 1. Case Recap
The plaintiff, Zhong Qingguang, subscribed in March 1999 to the property unit C on the 11th floor of Jiaxiang Pavilion in "Jiahui New City," developed by the defendant, Shenzhen Lushan Real Estate Co., Ltd. The plaintiff purchased the C unit because it was located at the northwest corner of the building, offering a view of the wide, clean Shennan Avenue, interspersed with green grass and red flowers, which Shenzhen residents take pride in, as well as the 800-meter green belt known as the "city's lung." However, these views were merely false advertising by the defendant and did not actually exist. The land north of "Jiahui New City" belonged to another real estate developer and would be built into high-rise residential buildings blocking the view, but the defendant concealed this and made false claims in promotional materials. The defendant's staff also repeatedly assured this, using sales brochures and models for illustration. The plaintiff, deceived, subscribed to the C unit on the 11th floor of Jiaxiang Pavilion in "Jiahui New City" against his true intentions. Before ordering the property, the defendant required the plaintiff to pay a deposit of 20,000 yuan, and 10 days later, when signing the subscription agreement, paid another 10% of the purchase price, 40,000 yuan. Two days later, the plaintiff was notified to sign the contract. At that time, the plaintiff discovered that besides Article 6 of the contract stating: "If Party B (the plaintiff) fails to pay on time according to Article 5 of this contract, Party A (the defendant) has the right to demand Party B pay a penalty—if the amount paid by Party B is less than 50% of the amount due, Party A may demand Party B pay a penalty of 30% of the total property price," there were also multiple unfair clauses added. The plaintiff immediately pointed out these clauses were unfair and should be negotiated, but the defendant disagreed and stated that if the contract was not signed, the 60,000 yuan already paid would not be refunded. Faced with such unfair treatment, the plaintiff still thought that as long as the property met his needs, he would not mind, and reluctantly signed the contract, paying the full 30% down payment of 162,133 yuan as required.
In May 1999, a wall was built on the vacant land north of Jiaxiang Pavilion to prepare for high-rise construction, and the beautiful view the plaintiff expected from the window would become windows of a high-rise building. Only then did the plaintiff realize he had been deceived and requested the defendant to cancel the property purchase contract, terminate the agreement, and refund the down payment paid. The defendant not only refused to cancel the contract but also, citing the extremely unfair Article 6 of the contract, refused to return the plaintiff's paid down payment of 162,133 yuan. On August 29, 2000, the defendant sold the property originally sold to the plaintiff, i.e., Jiaxiang Pavilion 11C in Jiahui New City, to a third party. With no recourse, the plaintiff entrusted Chief Lawyer Wang Tengfeng to protect his rights. After accepting the case, Lawyer Wang sent a lawyer's letter to negotiate with the other party, but it was not resolved, and the plaintiff had no choice but to file a lawsuit with the Shenzhen Futian District People's Court, requesting the court to rule:
1. To revoke the "Shenzhen Real Estate Contract" signed with the defendant;
2. To order the defendant to return the plaintiff's paid property price of 162,133 yuan and interest;
3. The defendant is ordered to bear the litigation costs of this case.
II. Judgment
First-instance judgment of the Shenzhen Futian District People's Court on November 9, 2000 [(2000) Shen Fu Fa Fang Chu Zi No. 1016]
载明：
"The purchase contract signed by the plaintiff and the defendant represents the true intentions of both parties, does not violate laws or regulations, and should be confirmed as valid according to law. After the plaintiff paid part of the purchase price to the defendant, they failed to fulfill the remaining payment obligations as agreed. The defendant has the right to assert lawful claims against the plaintiff through legal procedures, but the defendant has no right to arbitrarily dispose of the purchase price already paid by the plaintiff. On the contrary, the defendant, without rescinding the contract, resold the property already sold to the plaintiff to a third party, creating an obstacle to the plaintiff's continued performance of the contract. Now, the plaintiff's claim for the return of the purchase price and interest is in accordance with the law, and this court supports it."
The court fully supported the claims raised by Attorney Wang, legally ruled to rescind the "Shenzhen Real Estate Contract" signed by both parties, ordered the defendant to return the plaintiff's purchase price of 162,133 yuan along with interest, and bear all litigation costs of this case.
III. Case Analysis
Regarding the circumstances of this case, the plaintiff's representative believes:
(I) The process of the defendant entering into the contract with the plaintiff was a meticulously planned malicious fraud.
1. Before entering into the contract, the defendant engaged in false advertising to induce the plaintiff to book a unit. As the developer, the defendant was well aware of the planning for Jiahui New Town and its surroundings, knowing that the land to the north of Jiahui New Town belonged to others and would be developed into new buildings blocking the view, yet still boasted in promotional materials that "opening the window reveals a vast 800-meter permanent green belt, lush and unobstructed forever." The defendant's staff also repeatedly made false promises that "the north side is a green belt and a bus station," and used sales brochures and models for illustration. Under these circumstances, the plaintiff developed a mistaken understanding of the true situation of Jiahui New Town and, against their true intentions, subscribed to Unit C on the 11th floor of Jiaxiang Tower.
2. After temporarily succeeding with false advertising, the defendant further exploited the plaintiff's goodwill, gradually coercing the plaintiff into making payments during the contract signing process. When the plaintiff, deceived, decided to purchase the property, the defendant required the plaintiff to first pay a deposit of 20,000 yuan before signing the subscription agreement. Ten days later, upon signing the subscription agreement, the defendant demanded an additional 10% of the purchase price, 40,000 yuan. Without seeing the contract, the plaintiff had already paid 60,000 yuan in two installments. Only after the defendant presented the extremely unfair sales contract did the plaintiff learn that the land use rights for Jiahui New Town were only 50 years, the delivery date had been changed from early May to the end of July, and unfair terms such as a 30% penalty for the plaintiff's breach were included, while the defendant continued to deceive the plaintiff regarding the view.
3. In May 1999, the plaintiff discovered that a high-rise building would be constructed north of Jiahui New Town, blocking the northern view, contradicting the defendant's earlier representations and promises, and proposed to negotiate a refund for the unit. Subsequently, without notifying the plaintiff, the defendant arbitrarily resold the unit the plaintiff had reserved and appropriated the plaintiff's initial payment. This demonstrates that the defendant included the rare 30% high penalty clause in the contract with the intent to continue threatening the plaintiff after the fraud was exposed, aiming for illegal profit.
(2) The contract entered into by the defendant through fraudulent means is a contract subject to modification or rescission.
According to Article 54 of the Contract Law of the People's Republic of China, a contract may be modified or rescinded under the following circumstances: "...a contract entered into by a party through fraud, coercion, or taking advantage of the other party's hardship, causing the other party to act against their true intentions, the injured party has the right to request the People's Court or an arbitration institution to modify or rescind it." Additionally, according to Article 38 of the Advertising Law of the People's Republic of China: "Where false advertising is published in violation of this Law, deceiving and misleading consumers, causing damage to the legitimate rights and interests of consumers who purchase goods or receive services, the advertiser shall bear civil liability according to law..." The defendant shall bear civil liability for the damage to the plaintiff's legitimate rights and interests caused by its false advertising.
(3) The defendant shall bear civil liability after the contract is rescinded.
According to Article 58 of the Contract Law of the People's Republic of China, "If a contract is invalid or revoked, the property acquired as a result of the contract shall be returned; if it cannot be returned or there is no need for return, compensation shall be made at a discounted price. The party at fault shall compensate the other party for the losses incurred thereby, ..." In this case, the defendant clearly had fault through fraudulent means, while the plaintiff was always in good faith. Therefore, the defendant shall fully refund the plaintiff's initial home purchase payment of RMB 162,133 and pay interest on that amount at the bank's contemporaneous loan interest rate, totaling RMB 13,016.
(4) Proposing a claim for "revocation of the contract" can better protect the plaintiff's legitimate rights and interests.
After taking on this case, the plaintiff's attorney carefully analyzed the entire context and concluded that the plaintiff could either petition the court to terminate the "Shenzhen Real Estate Sales Contract" signed with the defendant or request the court to revoke the contract. However, based on the actual circumstances of the case, revoking the contract better protects the plaintiff's legitimate rights and interests. Although both termination and revocation of a contract are systems for extinguishing a contract, they differ. Termination refers to the act of extinguishing a contract from its inception or only for the future when conditions for termination are met, due to the expression of intent by one or both parties. A revocable contract refers to a situation where, due to an untrue expression of intent at the time of contract formation, the law allows the right holder to exercise the right of revocation to render an already effective contract void. The main differences between termination and revocation are: First, in terms of scope, revocation has a broader application, not only in the area of contracts lacking valid elements but also in cases of defective expressions of intent and civil acts; termination only applies to the premature extinguishment of validly established contracts. Second, in terms of causes, the causes of revocation are directly stipulated by law; while termination can be based on both legal provisions and party agreements. Third, in terms of effects, revocation always has retroactive effect, making the revoked civil act void from the beginning; termination often lacks retroactive effect, only having it when there is a special agreement or provision, or when termination is due to breach of a non-continuous contract.
In summary, the defendant's fraudulent conduct is evident, and they intentionally included various extremely unfair clauses in the contract, which is manifestly unfair to the plaintiff. The plaintiff's attorney, Director Wang Tengfeng, based on the case facts, proposed the legal claim most favorable to the plaintiff's interests. The court rendered a judgment accordingly, allowing the plaintiff to recover the home purchase payment and interest losses, thereby protecting the plaintiff's legitimate rights and interests and maintaining fair order in the economic market.
(Compiled and commented by Zhang Qingping)
Guangdong Zhiming Law Firm
Office
2001-1-19
