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 1st of this year, Xiao Chen purchased a commercial apartment from the couple Zuo Mou and Zhu Mou through an agent. Both parties signed a "House Purchase Contract" on the spot, agreeing on a total house price of 1.4 million yuan. Xiao Chen also paid a 100,000 yuan deposit and 252,000 yuan of the purchase price as agreed, and it was stipulated that the transfer registration procedures would be completed in late March of this year, with Xiao Chen paying the remaining balance.

 

Unexpectedly, starting from mid-March, local housing prices surged. By the time the agreed-upon property transfer date arrived, similar second-hand homes in the area were listed at 2 million yuan. But before Xiao Chen could feel happy, he received a message from Zuo Mou backing out of the deal. After that, Zuo Mou kept refusing Xiao Chen's calls. Xiao Chen repeatedly asked the agent to mediate but to no avail. Left with no choice, he filed a lawsuit with the Dongyang City People's Court, demanding that Zuo Mou and Zhu Mou continue to perform the contract, assist with the property transfer registration procedures, and pay 700,000 yuan in liquidated damages.
 
The presiding judge organized mediation between the parties. Zuo Mou and Zhu Mou strongly advocated for terminating the contract and expressed willingness to bear the liability for breaching the contract by returning the deposit double. They argued that the 700,000 yuan in liquidated damages claimed by Xiao Chen was too high. Xiao Chen, however, believed that Zuo Mou and Zhu Mou's actions were clearly dishonest and insisted that the house 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 Mou and Zhu Mou agreed to cooperate with the transfer registration procedures and compensate Xiao Chen for breach of contract losses of over 20,000 yuan. Xiao Chen paid the remaining 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.