[Case Summary]This case involvesDisputes over housing sales contractsIn 2021, the plaintiff, Gai * *, signed the "Beijing Second-hand Housing Sale and Purchase Contract" and the "Supplementary Agreement" with the two defendants, Guo * * and Zhang * *, and paid a deposit of 200,000 yuan. The defendants promised to lift the mortgage within a specified period, but failed to lift the second mortgage and refused to pay the down payment through fund escrow, which resulted in the inability to transfer the ownership of the house. The two defendants are husband and wife. The plaintiff entrusted Beijing Henglu Law Firm to handle the case for him/her.Wang FangliThe lawyer sued, alleging that the defendant's breach of contract resulted in the failure to achieve the contractual purpose, and requested the rescission of the contract, the cancellation of the online signing, the return of 200,000 yuan, the payment of the breach of contract penalty, and the application for pre-litigation property preservation. The court supported the first-instance judgment, confirming the rescission of the contract and the defendants' return of 200,000 yuan and compensation of 400,000 yuan for the breach of contract penalty; the second-instance court maintained the original judgment. The core disputes are: whether the defendant's refusal to release the mortgage and refuse to entrust the management constitutes a fundamental breach of contract, and whether the rescission of the agreement is effective; the applicable legal provisions are the relevant provisions of the Civil Code on the rescission of contracts and breach of contract liability.

I. Review of the Case

"What should I do if the house sale cannot be transferred?" "How to handle it if the seller does not release the mortgage?" "Can the down payment for buying a house be refunded?" These are the most anxious questions for second-hand house buyers. In 2021, the plaintiff, Gai * (hereinafter referred to as "Gai"), through the third party, a real estate agency company, signed the "Beijing City Second-hand House Sale and Purchase Contract" and the "Supplementary Agreement" with the two defendants, Guo * and Zhang *, reached an agreement on the sale and purchase of the house, and paid the two down payments totaling 200,000 yuan to the defendants as agreed. The defendants promised to submit the application for paying off the remaining loan to the original lending institution before February 5, 2021, and to release the mortgage registration procedures no later than March 1, 2021. The funds for releasing the mortgage would be raised by themselves. However, the defendants did not inform the plaintiff that there was still a second mortgage on the house that had not been released, and the copy of the property ownership certificate provided by the defendants did not match the original mortgage situation.

In addition, the plaintiff and the defendant agreed that the down payment of 2.04 million yuan would be paid by bank fund escrow before February 23, 2021. Due to the pandemic, the defendant agreed to postpone it to March 9, 2021. However, when handling the fund escrow, the defendant refused to handle the fund escrow and repay the mortgage on the grounds that the escrow funds could not be used to repay the mortgage, which resulted in the plaintiff being unable to complete the transfer on time. After visiting several places, the plaintiff decided to entrust Beijing Henglu Law Firm to handle the case.Wang FangliThe lawyer is representing this case.

II. The focus of the case

  • Focus 1: Whether the defendant's failure to release the pledge and refuse to entrust the funds to a third-party custodian constitutes a fundamental breach of contract.Can it be determined that the defendant's violation of the agreed time limit for releasing the mortgage and refusal to entrust the payment of the down payment result in the failure to achieve the contractual purpose, which is a prerequisite for terminating the contract and seeking compensation?
  • Focus 2: Have the two parties reached an agreement to terminate the contract?The defendant submitted a "Termination Agreement of the Sales Contract" unsigned by both parties and chat recordings, claiming that the agreement had been terminated through negotiation. Whether the agreement is effective or not will determine the determination of the breach of contract.
  • Focus 3: The joint and several liability of spouses and the amount of the breach of contract penalty.The two defendants are a married couple and signed the contract together. Should the second defendant be held jointly liable? Should the 400,000 yuan in breach of contract damages be supported? And what is the final amount of compensation in this case?

III. The professional intervention of Hengluo Law Firm

The plaintiff (Gai * ) alleged that:The plaintiff alleges that the two defendants failed to handle the formalities of lifting the mortgage registration within the agreed time limit, refused to pay the down payment in the form of fund escrow, and demanded that the down payment be used to lift the mortgage, which violates the contractual agreement and makes it impossible to achieve the purpose of the contract. This meets the conditions for the right of unilateral rescission, and the plaintiff requests to rescind the contract and the supplementary agreement, revoke the online signing, return the paid amount of 200,000 yuan, and pay the breach of contract damages; the two defendants are husband and wife and signed the contract together, so the second defendant should bear joint and several repayment responsibilities, and the plaintiff applies for pre-litigation property preservation.

The defendants (Guo * and Zhang *) argued that:During the trial, the defendant claimed that after the two parties were unable to continue to perform the contract, they had negotiated to terminate the contract, and there was no breach of contract. He/she submitted chat records, audio recordings, and a "Termination Agreement of the Sale and Purchase Contract" that was not signed by both parties.

Hengluo Lawyer's Agency Opinion:Wang FangliThe lawyer argued that the two defendants failed to handle the procedures for lifting the mortgage registration as agreed in the contract, and refused to allow the plaintiff to use the down payment to lift the mortgage by requiring the plaintiff to pay the down payment through fund escrow, which violated the contractual agreement and made it impossible to achieve the purpose of the contract, meeting the conditions for the plaintiff to exercise the right of unilateral termination. In response to the defendants' claim that "the agreement had been negotiated to be terminated", the lawyer immediately pointed out that the agreement had not taken effect - the content of the negotiation was that the defendant would pay the 200,000 yuan deposit to the intermediary, and after the plaintiff signed the agreement, they would jointly cancel the online signing. After the online signing was cancelled, the intermediary would pay the plaintiff. If the cancellation was unsuccessful, the agreement would be invalidated. However, the defendant did not return the deposit to the intermediary as agreed, so the two parties did not reach an agreement to terminate the contract. The court ultimately adopted our viewpoint.

IV. Outcome of the case

The court of first instance held that the two defendants did indeed violate the contractual provisions, resulting in the failure to achieve the contractual purpose; and the two defendants did not have sufficient evidence to prove that they had agreed to terminate the contract through consultation, so their defense arguments were not accepted. The first-instance judgment: First, confirm that the "Beijing City Second-hand Housing Sale and Purchase Contract" and the "Supplementary Agreement" signed by the two defendants and the plaintiff on January 27, 2021 were terminated on August 18, 2021; Second, the two defendants shall assist Gai * to handle the cancellation of the online signing formalities within ten days from the effective date of this judgment; Third, the two defendants shall return the payment of 200,000 yuan made by the plaintiff within ten days from the effective date of this judgment; Fourth, the two defendants shall compensate the plaintiff for the breach of contract penalty of 400,000 yuan within ten days from the effective date of this judgment. Subsequently, the two defendants appealed against the judgment, requesting to confirm the validity of the termination agreement and reject the claims for the return of the deposit and the breach of contract penalty. The court of second instance held that their appeal requests were not well-founded, and therefore ruled to dismiss the appeal and maintain the original judgment.

5. Henglu Law Firm's Reminder

This case is handled by Beijing Henglu Law Firm.Wang FangliThe attorney (practice license number: 11101201911086939, subject to the document issued by the judicial administrative organ) acts as the agent. Attorney's Tip: In the second-hand housing transaction, if the seller fails to release the mortgage, conceals the second mortgage, or refuses to entrust the funds, it may constitute a fundamental breach of contract. The buyer may exercise the right of rescission and demand the return of the deposit and the breach of contract damages; when signing the contract, the buyer should verify the mortgage status, agree on the release of the mortgage period and the entrusted payment. If the "housing transaction cannot be transferred", the buyer should promptly entrust a professional lawyer and apply for property preservation.

VI. Common Questions and Answers about Real Estate Sale and Purchase Disputes

  1. Q: If the seller doesn't lift the mortgage and the transfer of ownership cannot proceed, can I terminate the contract?
    A:Yes, if the seller fails to release the mortgage as agreed, which results in the contract's purpose not being achieved, it constitutes a fundamental breach of contract. The buyer can exercise the right of rescission and demand the return of the paid amount and the breach of contract penalty.
  2. Q: Can the deposit for buying a house be refunded?
    A:If the contract is terminated due to the seller's breach of contract, the buyer has the right to demand the return of the deposit; if the seller breaches the contract fundamentally, the buyer may also claim the breach of contract damages.
  3. Q: What should I do if the seller conceals the fact that the property is subject to a second mortgage?
    A:Hiding the mortgage will affect the transaction's security. Buyers can claim breach of contract and seek compensation. Therefore, it is necessary to check the mortgage status with the real estate registration department before signing the contract.
  4. Q: Is the termination agreement that hasn't been signed valid?
    A:A termination agreement that has not been signed by both parties and has not been actually performed is not effective, and it cannot be determined that the contract has been terminated through consultation based on this agreement.
  5. Q: What evidence should I prepare if I encounter a dispute when buying a house?
    A:Keep the contract, supplementary agreement, deposit notes, mortgage inquiries, communication records, etc., and consult a professional lawyer as soon as possible and apply for property preservation as needed.