Failure to deliver the property for six years, contract terminated with compensation for principal and interest

Compiled from: Hunan High Court
 
They had hoped to move into their new home as soon as possible, yet six years have passed with still no sign of progress. Having already repaid over 280,000 yuan in mortgage payments, can the contract still be terminated now? And who will be responsible for repaying the remaining mortgage?

 
 

Case review
In February 2017, Jiang entered into a commercial housing sales contract with a real estate company in Hengyang City, Hunan Province. The contract stipulated a mortgage loan, with the property to be delivered before May 30, 2017. After the contract was signed, Jiang obtained a mortgage loan of 560,000 yuan from a bank, and the bank paid the loan to the real estate company's account in accordance with the tripartite contract.
 
From April 2017 to August 2023, Jiang made timely repayments of the bank loan, totaling over RMB 280,000 in principal and interest.
 
By the end of August 2023, a real estate company in Hengyang, Hunan Province, had still not obtained the completion acceptance filing procedures for the houses and had not delivered the houses to Jiang. Jiang then filed a lawsuit with the Yancheng District People's Court of Hengyang City, Hunan Province, requesting the termination of the House Sales Contract and the Mortgage Loan Contract, and that the real estate company in Hengyang, Hunan Province, return the purchase payments already made, interest, and liquidated damages.
 
[4] The Yanzhou District People's Court in Hengyang City, Hunan Province, found that the defendant real estate company had delayed delivering the house to the plaintiff Jiang for over six years, constituting a fundamental breach of contract, while the plaintiff was not at fault. Therefore, the plaintiff's request to terminate the house sales contract was in accordance with the law. Since the house sales contract was terminated, the purpose of the commercial housing mortgage loan could not be achieved, and the plaintiff's request to terminate the mortgage loan contract with the third-party bank was also in accordance with the law.
 
In summary, the court ruled that the defendant shall return to the plaintiff the loan principal and interest already paid in the amount of RMB 286,432.74, and pay liquidated damages of RMB 14,321.64; and that the defendant shall repay a certain bank the remaining loan principal of RMB 436,257.81 and interest accrued in accordance with the contract. After the judgment was rendered, none of the parties appealed, and the judgment has become effective.
 
 
Civil Code of the People's Republic of China 
[6] Article 566
After the contract is terminated, if it has not been performed, performance shall cease; if it has been performed, the parties may request restoration to the original state or take other remedial measures based on the circumstances of performance and the nature of the contract, and have the right to claim compensation for losses. If the contract is terminated due to breach, the party entitled to terminate may request the breaching party to bear liability for breach, unless otherwise agreed by the parties.
 
 
Interpretation of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Disputes over Commercial Housing Sales Contracts
Article 20
If the purpose of the commercial housing guarantee loan contract cannot be achieved due to the confirmation of invalidity, revocation, or termination of the commercial housing sales contract, and the parties request termination of the commercial housing guarantee loan contract, such request shall be supported.
 
Article 21
After the commercial housing sales contract is confirmed invalid, revoked, or terminated, and the commercial housing guarantee loan contract is also terminated, the seller shall return the principal and interest of the received housing loan and purchase price to the secured party and the buyer, respectively.
 
 
[1] The author's perspective
A contract lawfully formed is protected by law, and all parties shall perform it in accordance with the contract terms. In a commercial housing sales contract, the buyer's primary contractual obligation is to pay the purchase price, while the developer's primary contractual obligation is to deliver the commercial housing. In this case, because a real estate company in Hengyang City, Hunan Province breached the contract, leading to its termination, the company shall bear liability for breach. During the performance of the contract, Jiang paid the mortgage loan for the house, and this portion of the mortgage loan constitutes Jiang's loss. The real estate company shall compensate Jiang for the mortgage loan losses already paid and support the liquidated damages as stipulated in the contract between the parties.