Analysis of the Dispute Case of Luo XX v. Shenzhen Haox Industrial Co., Ltd. over Dual Sale of One Property

[Lead Attorney: Zhiming Law] I. Case Overview

The plaintiff in this case, Luo XX (female), purchased on July 12, 2000, the property numbered 1XX, Building 3, "Shengde Yuan," Shenzhen Bay Garden, developed by the defendant Shenzhen Haoxing Industrial Co., Ltd. (hereinafter referred to as "Haoxing Company"), and paid the full purchase price. At the same time, the defendant Haoxing Company delivered the property to the plaintiff Luo XX for use, yet continuously delayed signing a formal property purchase contract with the plaintiff and handling the relevant purchase procedures, and moreover failed to go through the property ownership transfer procedures. The fact of the matter is that, prior to the plaintiff Luo XX's purchase of the property, the defendant Haoxing Company had already sold the property to another woman surnamed Song, and had completed the property ownership transfer procedures, but had not delivered the property. The plaintiff Luo XX was completely unaware of this fact at the time of her purchase. The plaintiff Luo XX repeatedly approached the defendant to urge the handling of the transfer procedures, but the defendant merely issued several documents certifying that Luo XX lawfully owned the property. In this manner, the matter was dragged on until April 2003, when Luo XX, in order to protect her lawful rights and interests from being infringed upon, through the introduction of an acquaintance, entrusted Zhiming Law Firm to file a lawsuit with the Nanshan District People's Court.

II. Attorney's Opinion

This case is a typical instance of "selling one property to two buyers." The plaintiff, Luo XX, who paid the full purchase price, only occupies the property but does not actually enjoy ownership of the house. Therefore, his rights are in a highly precarious position. Once the rightful owner asserts a claim over the property, Luo XX will lose both the money and the house. In order to ensure the safety of Luo XX's property during the litigation, Attorney Zhiming submitted an "Application for Pre-litigation Property Preservation" to the court on behalf of Luo XX.

The attorney for the plaintiff argues that an "action for confirmation of rights" should be adopted to maximize the plaintiff's legitimate legal interests, rather than an "action for performance," and therefore files the lawsuit with the following requests to the court:

(1) Order that the validity of the house purchase contract relationship between the plaintiff and the defendant be confirmed;

(ii) Order the defendant to immediately sign a formal purchase contract with the plaintiff, complete the relevant purchase procedures, and obtain the plaintiff's property ownership certificate.

III. Judgment Result

In this case, due to the defendant's absence at trial, the court conducted the proceedings by default in accordance with the law and rendered its judgment on June 17, 2003 [Civil Judgment (2003) Shen Nan Fa Min San Chu Zi No. 1208]. The judgment confirmed that the plaintiff's claims were true, and ruled that the housing purchase contract relationship between the plaintiff and the defendant was established, that the defendant Hao X Company should sign a formal housing purchase contract with the plaintiff within ten days of the judgment taking effect, complete the relevant purchase procedures, and obtain the plaintiff's property ownership certificate within 180 days.

IV. Legal Analysis:

This case appears simple on the surface, yet it conceals the lawyer's superb case-handling skills. Why is that?

First, in this case, the plaintiff and defendant only performed their contractual obligations in fact, without signing a formal purchase contract. Under Chinese law, real estate transactions must be executed through a formal written contract. Therefore, the first issue to address is to establish the de facto contractual relationship of sale between the parties.

Secondly, this case allows for the protection of the parties' interests through two distinct claims, which is both the difficulty of the case and precisely what makes it compelling.

The first claim is to assert that the sales contract between the two parties is revocable, adopting an "action for payment," based on the fact that Defendant Hao X Company concealed the fact that the house had already been sold when selling it to Plaintiff Luo XX, which constitutes serious fraudulent conduct. This approach renders the contract void; given the conclusive evidence, this kind of lawsuit almost always wins, with a very high probability of success, and it is the method most lawyers are accustomed to using. However, the problem with this approach is:

1. At the time of the trial in this case, nearly three years had passed since Luo XX purchased the property, and the value of the property itself after three years was far more than its value at the time of purchase. If the rescission of the contract is sought, then the law provides that once the contract is rescinded, the contract becomes void, Luo XX must vacate the property, and the defendant Hao X Company must refund the purchase price. This outcome is undoubtedly one that Luo XX is unwilling to accept.

2. Even if, hypothetically, Luo XX were willing to give up the appreciation on the property over these three years and instead claim the return of the original purchase payment, it is well known that collecting overdue debts in reality is one of the most troublesome matters. If unforeseen circumstances arise during this process—such as the company going bankrupt or other situations—it is very likely that Luo XX's payment could not be recovered, resulting in Luo XX winning the judgment but losing the case.

Another claim to protect the client's lawful rights and interests is to adopt an "action for confirmation of rights," asserting that the contract is valid and requesting the court to confirm that the plaintiff, Luo XX, owns the property. The advantage of doing so is:

1. It has consolidated the otherwise insecure ownership of the plaintiff, Luo XX. Luo XX had previously been in possession of the property, but did not enjoy complete ownership, and even his right of possession was subject to threat at any time. However, once the court confirms in accordance with the law the plaintiff Luo XX's ownership of the property, and confirms the validity of the real estate sales contract between the plaintiff and the defendant, the plaintiff Luo XX's rights to the property will be protected by law, free from infringement by anyone, and he may safely exercise his ownership.

2. Based on the court judgment, Plaintiff Luo XX may transfer the property to realize gains from its appreciation, as only in this manner can the legitimate interests of Plaintiff Luo XX be maximally protected.

Of course, since this case involves the interests of another home buyer, Ms. Song, the court is likely to take this factor into account in practice and expand the scope of the case, making the chances of success with the second litigation approach not as high as with the first. It may also face some potential risks, which then calls for the practical experience of the attorney handling the case. The key is to avoid involving other parties as much as possible during the litigation process, and instead firmly adhere to the main line of the legal facts that have already occurred between the plaintiff and the defendant in conducting a "rights confirmation action": the plaintiff purchased the real estate developed by the defendant and paid the full amount, while the defendant has already delivered the house. Given that the principal obligations under the contract have been performed, the plaintiff asserts that the contract is established, and further demands that the defendant perform the ancillary obligation of handling the property title formalities. The essence of this main line is to guide the judge to follow the attorney's line of reasoning during the trial, so that the desired result naturally falls into place, achieving the ideal outcome of maximizing the protection of the plaintiff Luo XX's legitimate rights and interests.

(Compiled and commented by Sun Zhitao)

Zhiming Office

June 26, 2003