House price increase leads to regret, landlord ordered to pay compensation for breach of contract

Compiled and organized from: Dongyang City People's Court, Zhejiang Legal Education, Shandong High Court
 
Case review
On January 1 of this year, Xiao Chen purchased a commercial residential property from the couple Zuo and Zhu through an intermediary. The two parties signed a Real Estate Sales Contract on the spot, agreeing on a total property price of 1.4 million yuan. Xiao Chen also paid a deposit of 100,000 yuan and a purchase payment of 252,000 yuan as agreed. They further agreed that the parties would complete the transfer registration procedures in late March of this year, and Xiao Chen would pay the remaining balance.

 

Unexpectedly, starting from mid-March, local housing prices surged significantly. By the time the parties had agreed to transfer the property, similar-sized second-hand homes in the area were already listed at 2 million yuan. Before Xiao Chen could even rejoice, he received a message from Zuo stating that she would renege on the deal. After that, Zuo consistently refused to answer Xiao Chen's calls. Despite multiple attempts to communicate through the intermediary, which proved futile, Xiao Chen had no choice but to file a lawsuit with the Dongyang People's Court, demanding that Zuo and Zhu continue to perform the contract, assist in completing the property transfer registration procedures, and pay 700,000 yuan in liquidated damages.
 
The presiding judge organized mediation between the parties. Zuo and Zhu strongly insisted on rescinding the contract and expressed willingness to bear liability for double return of the deposit, arguing that the 700,000 yuan penalty claimed by Xiao Chen was excessively high. Xiao Chen contended that Zuo and Zhu's conduct was clearly in bad faith and that the property must be transferred.
 
The presiding judge explained to both parties that in this case, the right to choose whether to continue performance or terminate the contract lies with the non-breaching party. If the choice is to continue performance, the seller must assist with the transfer and also pay liquidated damages. If the choice is to terminate the contract, compensation for losses can include the obtainable benefits, such as the appreciation in the house's value.

 

Ultimately, under the mediation of the presiding judge, Zuo and Zhu agreed to cooperate in completing the transfer registration procedures and to compensate Xiao Chen over 20,000 yuan for damages due to breach of contract. Xiao Chen paid the remaining balance of the purchase price on the day of the transfer.
 
 
Civil Code of the People's Republic of China
Article 580  
If a party fails to perform a non-monetary obligation or performs a non-monetary obligation in a manner inconsistent with the agreement, the other party may request performance, except in any of the following circumstances:
(1) Performance is impossible in law or in fact;
(2) The subject matter of the debt is unsuitable for compulsory performance or the cost of performance is excessively high;
(3) The creditor has not requested performance within a reasonable period.
Where any of the excepted circumstances specified in the preceding paragraph prevents the purpose of the contract from being achieved, the people's court or an arbitration institution may, upon a party's request, terminate the contractual rights and obligations, provided that liability for breach of contract is not affected.
 
Article 584  
[1] If one party fails to perform its contractual obligations or performs them in a manner inconsistent with the agreement, causing losses to the other party, the amount of damages shall be equivalent to the losses caused by the breach, including the benefits obtainable after the performance of the contract; however, it shall not exceed the losses that the breaching party foresaw or ought to have foreseen at the time of entering into the contract as a possible consequence of the breach.
 
 
 
[1] The author's perspective
[2] In cases involving non-monetary debts such as the transfer of property ownership, unless the subject matter cannot be performed or is unsuitable for performance, the right to choose between continuing the performance of the contract or terminating the contractual rights and obligations lies with the non-breaching party. If the non-breaching party chooses to continue the performance of the contract, it may request the breaching party to perform non-monetary debts such as the registration of transfer, while also demanding that the breaching party bear the liability for breach of contract as agreed in the contract. If the non-breaching party chooses to terminate the contract and end the contractual rights and obligations, it may also choose to apply the liquidated damages or deposit clause as agreed in the contract. If the agreed deposit or liquidated damages are insufficient to compensate for the losses caused by the breach, the non-breaching party may request compensation for the excess losses. According to Article 584 of the Civil Code, the amount of damages includes the benefits obtainable after the performance of the contract, including foreseeable benefits such as the appreciation of the property.