[Case Summary]This case involves a dispute over the transfer of land use rights. After B Company obtained the right to use state-owned land at "zero land price" in accordance with the investment promotion policy, it signed a "Land Use Rights and Factory Transfer Contract" with A Company. A Company paid a down payment of 2.6 million yuan to start using the land. Later, due to B Company's failure to meet the investment intensity requirements and the land being mortgaged, B Company sued to terminate the contract, while A Company counter-sued to continue the performance of the contract. In the first instance, the court ruled that the contract was invalid due to "violation of public order and good customs" and ordered both parties to return the land and money. A Company then entrusted Beijing Henglu Law Firm to handle the case.Zhi Chao LiThe lawyer appealed, and the second-instance court determined that the transfer contract was a true expression of intention and did not violate mandatory provisions or public order and good customs. It reversed the original judgment and confirmed the validity of the contract. The core disputes are the determination of the validity of the contract and the application conditions of public order and good customs. The applicable legal provisions are Article 153 (Public Order and Good Customs) of the Civil Code of the People's Republic of China and the relevant provisions on investment promotion and the transfer of land use rights.

I. Review of the Case Facts

"Is the contract valid if the land obtained at zero land price is transferred to others?" This is a professional question in investment attraction and land transfer. Related terms include "conditions for the validity of the land use rights transfer contract", "does public order and good customs lead to the invalidity of the contract", "can land obtained at zero land price be transferred", and "can the land be transferred even if it is mortgaged". On December 14, 2013, the C District Management Committee and Xinyang City Shihu District D Solid Wood Furniture Factory and Henan E Solid Wood Co., Ltd. signed an investment attraction agreement, stipulating that the "Xinyang Zhongxin D Furniture Park" project would implement a "zero land price" policy. In 2014, the Xinyang Municipal Government approved this preferential policy; in July 2015, Company B (formerly known as Henan Province F Company) signed a supplementary agreement; in March 2016, Company B signed the "State-Owned Construction Land Use Right Transfer Contract" with the Xinyang Municipal Land Bureau to obtain land use rights, and the C District Management Committee refunded the land transfer fees in accordance with the policy.

On July 29, 2017, Company B signed a "Land Use Right and Factory Transfer Contract" with Company A, transferring part of the land and factory. After Company A paid a down payment of 2.6 million yuan, it began to use the transferred assets. However, during the performance of the contract, Company B failed to meet the investment scale agreed upon in the investment attraction agreement and did not lift the land mortgage on time after the land was mortgaged. As a result, a dispute arose between the two parties. In 2020, Company B sued to terminate the contract, while Company A counter-sued to demand continued performance of the contract.

II. The focus of the case

  • Focus 1: Whether the Land Use Right and Factory Transfer Contract involved in the case is valid.The first-instance court ruled the contract invalid on the grounds that it violated public order and good customs. In the second instance, the court needs to examine whether the contract truly reflects the parties' intent and whether it violates mandatory regulations.
  • Focus II: The application conditions of the principle of public order and good customs.Is it inevitable that the "zero land price" investment promotion and insufficient investment will lead to the invalidity of the transfer contract, or is it just a breach of contract?

III. Professional intervention by Hengluo Law Firm

The appellant (Company A) alleges that:Company A was not satisfied with the judgment of the first instance and entrusted Henglue Law Firm to handle the appeal.Zhai Chao LiThe lawyer filed an appeal, requesting to revoke the first-instance judgment and change the verdict to support his claim to continue to perform the contract, etc.

The appellee (Company B) argued and held the view in the first instance that:Company B obtained the land at "zero land price", but the actual investment was less than 10% and far from the investment target of 132 million yuan. The transfer of the land resulted in the failure of the investment promotion policy, which violated public order and good customs. Therefore, the plaintiff claimed that the contract was invalid and the parties should return the property to each other.

Legal Opinion by Hengluo Law Firm:Zhai Chao LiThe lawyer focused on the key points and argued his case vigorously:

  • The first-instance court made factual findings that were incorrect: Company B was not the direct subject of investment attraction, and only signed the supplementary agreement in 2015. The Management Committee of Area C failed to provide evidence that Companies D and E authorized Company B to act as the project subject. The preferential policy documents were not effectively substantiated. Company B signed a transfer contract with the Land Bureau in 2016, which clearly stipulated that the investment could be transferred after completing 25% of the total investment. However, the first-instance court concluded that the investment was insufficient without any evidence, which constituted a factual misunderstanding.
  • First-instance legal application error: the conditions for applying public order and good customs are not satisfied — the Management Committee of District C failed to provide preferential policy documents and the approval of the municipal government, failed to prove the fact of "zero land price" refund, and B Company is not a direct investment promotion enterprise. There is no evidence of the investment obligation. Under the circumstances of unclear facts and insufficient evidence, the determination of invalidity for violating public order and good customs is an error in legal application.

IV. Outcome of the case

The appellate court held that the focus of the dispute in this case is the validity and performance of the "Land Use Right and Factory Transfer Contract". Regarding the validity of the contract, B Company lawfully obtained the land use right through assignment and completed the ownership registration. The transfer contract signed by B Company and A Company reflects the true intention of both parties and does not violate mandatory legal provisions or the principles of public order and good customs. The transfer contract between Xinyang City Land Bureau and B Company and the transfer contract in this case belong to independent legal relationships, and the land department did not claim that the contract was invalid. The first-instance court's determination that the contract was invalid was a legal application error, and it should be corrected.

Regarding the performance restrictions, after investigation, although Company B obtained land at "zero land price" and received a refund according to the investment promotion policy, it failed to meet the agreed investment intensity and scale, and the Management Committee of Zone C explicitly opposed the land division. Given that the implementation of the government's investment promotion policy and public interests are involved, the land in question does not currently meet the conditions for division, and the counterclaim request of Company A to handle the land division and transfer is not supported. Second-instance judgment:Revoke the first-instance judgment; confirm the validity of the transfer contract involved in the case; and dismiss the other claims of both partiesThe successful overturning of the verdict in the second instance demonstrates the judiciary's respect for the market economic order.

5. Henglu Law Firm's Reminder

The transfer of land use rights shall comply with the provisions of the transfer contract and the law. If the investment intensity does not meet the standard, it is usually a breach of contract rather than automatically rendering the contract invalid. When encountering the situation that "the land transfer contract is declared invalid", it is recommended to entrust a professional lawyer to distinguish between breach of contract and defects in effectiveness. This case is handled by Beijing Henglu Law Firm.Zhai Chao LiThe lawyer (practice license number: 11101202311629788, subject to the document issued by the judicial administrative organ) acted on behalf of the client, relying on the effectiveness of the contract and the rules of public order and good customs, and successfully obtained a reversal of the second-instance judgment to confirm the validity of the contract.

VI. Common Questions about Land Use Right Transfer Cases (FAQ)

  1. Q: If the first-instance judgment of a land transfer contract is that it is invalid, can the second-instance court change the judgment and declare it valid?
    A: Yes. If the contract is a true expression of intention and does not violate mandatory provisions or public order and good customs, the first-instance court's ruling that it violates public order and good customs solely because of insufficient investment is an error in the application of the law. The second-instance court can rule that it is valid, and this is the case in the present case.
  2. Q: Can the land obtained at zero land price be transferred to others?
    A: After obtaining the legal right of use and completing the registration, the land can be transferred in accordance with the provisions of the transfer contract (such as completing a certain percentage of investment). Failure to meet the investment intensity requirements is generally considered a breach of contract, but it does not directly result in the invalidation of the transfer contract.
  3. Q: Can public order and good morals lead to the invalidation of a contract?
    A: It should only be applied when it truly endangers public order and good customs, and sufficient factual evidence is required. It cannot be determined that it violates public order and good customs merely because the investment promotion policies have not been fully implemented.
  4. Q: Can the land be transferred if it has been mortgaged?
    A: If the mortgage has not been lifted, it is usually impossible to handle the transfer of ownership. If the contract cannot be performed temporarily due to the mortgage, the party concerned may claim a performance restriction, but the contract will not be automatically invalidated.
  5. Q: If the investment promotion and attraction policy fails, what should we do with the signed transfer contracts?
    A: If the policy fails, it will greatly affect the performance of contractual obligations and the liability for breach of contract, but it does not necessarily negate the validity of the contract. The party in compliance may, in accordance with the contract, claim for continued performance or compensation.