Wang Moumou and Yan Moumou v. Dalian Real Estate Development Co., Ltd., Han Mou, Yu Mou, and Zhao Mou—Property Rights Dispute Case

Ma Linping

[Keywords] Multiple retrials / Property ownership disputes / Protection of property rights

【Key Points of the Ruling】 The central issues in this case are: 1. Whether the project involved in the case—the project in the Dalian Development Zone—was jointly invested and developed by Zhao and Yu; 2. Whether Yu’s transfer of the land use rights and any structures erected on the land to Wang, and Wang’s subsequent transfer of the land use rights and such structures to Yan, constitute a bona fide acquisition; 3. Whether Zhao’s claim that he should be recognized as the owner of the buildings on the project and entitled to the remaining term of the land use rights should be upheld.

【Facts of the Case】 In 1991, Yu obtained approval for the project in the Dalian Development Zone. In 1992, Yu signed a “Unified Construction and Management Agreement” with a certain company in the Development Zone, entrusting that company with the unified construction and management of the project. In July 1992, Zhao paid 2 million yuan to the Development Zone company as land payment. In November 1992, Yu and Zhao signed an agreement stipulating that Yu would voluntarily withdraw from the partnership, with Zhao purchasing Yu’s equity and using the developed property project as collateral. In 1993, the Development Zone company signed a “Construction Contract” with a construction company, assigning the specific construction work of the Dalian Development Zone project to the construction company. In August 1994, Yu signed a “Contract for the Transfer of State-Owned Land Use Rights” with the Land Administration Bureau of the Dalian Economic and Technological Development Zone, paid the land transfer fee, and obtained the “Certificate of State-Owned Land Use Rights.” After obtaining the project, the construction company assigned the construction work to its subordinate work area, led by Zhao as the foreman. From 1992 to 2000, Zhao continuously made payments to Yu. Subsequently, Zhao transferred all assets and rights he had invested personally since 1991 in the course of undertaking the Dalian Development Zone project to a certain real estate development company in Dalian, and both parties confirmed this transfer. Because Yu failed to assist Zhao in transferring the land use rights and ownership of the structures on the land to the name of the Dalian real estate development company, the Dalian real estate development company filed a lawsuit against Yu in 2004, seeking confirmation that the project’s property rights and land use rights belonged to it. During the litigation, Zhao informed the Dalian real estate development company that he would personally assume responsibility for any debts and claims arising from the project. The Dalian real estate development company agreed that Zhao could participate in the litigation as a third party with an independent claim, and the outcome of the litigation would be borne by Zhao himself.

In 2000, Yu Mou and Wang Mou signed a land-use transfer agreement, under which Yu Mou agreed to transfer to Wang Mou the land-use rights and any fixtures on the land that included the aforementioned project. After signing the agreement, Wang Mou paid Yu Mou the full transfer price, and in 2000, Yu Mou delivered the land-use certificate to Wang Mou but failed to assist Wang Mou in completing the transfer registration procedures. In 2003, Wang Mou filed a lawsuit against Yu Mou. The People's Court of the Dalian Intermediate Economic and Technological Development Zone ruled that Yu Mou must, within thirty days from the date the judgment became effective, assist Wang Mou in completing the procedures for transferring the land-use rights in question and also hand over the architectural documentation pertaining to the buildings on the land. After the judgment became effective, Wang Mou obtained the land-use rights to the disputed property pursuant to the judgment and, in 2004, transferred both the land-use rights and the buildings thereon to Yan Mou. In 2004, Yan Mou obtained the land-use certificate for the disputed land.

In this case, a real estate development company in Dalian filed a lawsuit seeking ownership of the project property. The case went through four rounds of remand for retrial. Wang and Yan, dissatisfied with the fourth remand judgment issued by the People’s Court of the Dalian Economic and Technological Development Zone, filed an appeal with the Intermediate People’s Court of Dalian. Yan entrusted our firm’s lawyers to represent him in the appeal. Ultimately, the Intermediate People’s Court of Dalian overturned the original judgment and dismissed the plaintiff’s claims in the original trial.

【Judgment】 The second-instance court in the retrial ruled to overturn the first-instance court’s judgment in the retrial and dismissed the plaintiff’s claim in the first-instance retrial.

【Reasoning of the Ruling】 The second-instance court held that, This case originated when a real estate development company in Dalian filed a lawsuit against Yu, seeking confirmation that ownership of a certain property project located in the Dalian Economic and Technological Development Zone belonged to it. Subsequently, a third party, Zhao, joined the litigation and filed an independent claim. After Zhao submitted his independent claim, the Dalian real estate development company acknowledged Zhao’s claim. Therefore, this case should be adjudicated primarily on the basis of Zhao’s claim for confirmation of property rights. The subject matter of Zhao’s claim for confirmation comprises two components: land use rights and the buildings standing on the land. Although the principle of unity of land and buildings is a fundamental tenet established by China’s current real estate laws and regulations, circumstances where land and buildings are not aligned due to objective reasons do occur from time to time in practice. In this case, the buildings on the land and the land use rights have become separated; hence, they will be analyzed separately as follows: First, with regard to the buildings on the land, Zhao contends that he was the one who invested in and constructed them. Although the project was initially applied for and obtained by Yu, Zhao and Yu signed a transfer agreement, under which Yu withdrew from the project. Consequently, Zhao argues that the property rights to the buildings should belong to him. In this regard, this court holds that the buildings claimed by Zhao are unfinished constructions lacking completion acceptance procedures. It remains unknown whether these buildings comply with planning requirements and construction standards. Only legally recognized civil rights are protected by law;Therefore, before the buildings involved in this case have been duly accepted and certified by the relevant authorities, the People’s Court should not directly confirm their ownership. Second, with respect to the land use rights, Zhao某 also asserts that he was the one who actually paid the land premium and that Yu某 transferred the project’s benefits to him. Thus, upon acquiring ownership of the buildings on the land, Zhao某 also acquired the land use rights. In this connection, this court observes that the transfer agreement between Zhao某 and Yu某 was executed in 1992, whereas Yu某 entered into a contract for the transfer of state-owned land use rights with the Land Administration Bureau of the Dalian Economic and Technological Development Zone in 1994 and subsequently obtained the certificate of state-owned land use rights. Even if, as Zhao某 claims, Yu某 had already transferred the entire project’s benefits to him in 1992, Yu某 completed the land use right registration procedures in 1994 without raising any objection. Moreover, over the subsequent several years, there is no evidence indicating that Zhao某 ever requested Yu某 to carry out the necessary procedures for transferring the land use rights. If Zhao某 genuinely believed that he should have been entitled to the land use rights, his failure to assert his rights over the years would be inconsistent with common sense. Yu某’s acquisition of the land use rights certificate was duly authorized by the administrative authority. If Zhao某 believes that the administrative authority issued the certificate erroneously, he should have filed an administrative lawsuit. If he maintains that, according to the transfer agreement, Yu某 should have transferred the land use rights certificate into his name, then he should have brought a suit demanding performance of the contract rather than seeking confirmation of property rights.

Moreover, while the objective truth in this case may be as claimed by Mr. Zhao—that Mr. Yu obtained the project’s approval and that all other funding was provided entirely by Mr. Zhao—according to the legal truth, the relevant construction project was governed by a “Construction Contract” signed between the Construction Company and a certain company in the Development Zone. Based on the parties to the Construction Contract, the company in the Development Zone should be regarded as the project’s employer, and the Construction Company as the contractor. Although the Construction Company explicitly stated that Mr. Zhao was the actual contractor, this only indicates that Mr. Zhao, as the actual contractor, made investments and thus has the right to claim payment for the work performed. However, it is the company in the Development Zone—as the project’s employer—that is legally recognized as the true rights holder of the project. If this case were to recognize, based on Mr. Zhao’s claim and the transfer agreement between him and Mr. Yu, that Mr. Zhao has acquired all benefits from the project and directly assign ownership of the land use rights and the buildings thereon to Mr. Zhao, it could create an awkward conflict with the legitimate legal claims of the company in the Development Zone, which, under the Construction Contract, is entitled to exercise its rights as the employer. Therefore, from this perspective, it would not be appropriate to directly grant Mr. Zhao’s claim for confirmation of his rights in this case.

In light of the foregoing, Zhao’s claim seeking confirmation that ownership of the property project located in the Dalian Economic and Technological Development Zone, as well as the remaining term of land use rights, belong to him lacks both factual and legal basis, and thus is not supported by this court. Moreover, the claim brought by Dalian Real Estate Development Co., Ltd. is based on the assignment of rights from Zhao; since Zhao’s claim itself has no legal basis, this court also does not support the claim brought by Dalian Real Estate Development Co., Ltd. Some of the appellant’s grounds for appeal are well-founded and should be accepted. Although the original judgment clearly established the facts, it applied the law improperly and shall accordingly be corrected in accordance with the law.

[Relevant Statutes] Property Law of the People's Republic of China Article 9 The establishment, modification, transfer, and extinction of real property rights shall take effect upon lawful registration; without such registration, they shall not take effect, unless otherwise provided by law. Natural resources that, according to law, are owned by the state may not require registration of ownership.

Property Law of the People's Republic of China Article 106 If a person without the right of disposition transfers real property or personal property to a transferee, the owner has the right to reclaim it. Unless otherwise provided by law, a transferee shall acquire ownership of the real property or personal property if the following conditions are met:

(1) The transferee was a bona fide purchaser when acquiring the real property or personal property;

(2) Transfer at a reasonable price;

(3) Real or personal property transferred has been registered as required by law if registration is mandated, and has been delivered to the transferee if no registration is required.

If the transferee acquires ownership of real property or personal property in accordance with the preceding paragraph, the original owner shall have the right to claim compensation for losses from the person who lacked the authority to dispose of the property.

If a party acquires other property rights in good faith, the provisions of the preceding two paragraphs shall apply by analogy.

《 Contract Law of the People's Republic of China Article 44 A contract established in accordance with the law shall become effective upon its establishment. If laws or administrative regulations stipulate that approval, registration, or other formalities must be completed for the contract to become effective, such stipulations shall prevail.

[Lawyer’s Viewpoint] First, according to the provisions of the Property Law of the People’s Republic of China, the establishment of real estate must be registered in accordance with the law in order to take effect; without such registration, no legal effect arises. The real estate ownership certificate serves as proof that the holder enjoys property rights over the real estate. At the time of the land transaction involved in this case, the land use right certificate indicated that Yu was the rightful holder of the land use rights. Therefore, the court cannot disregard the effectiveness of the public registration system merely because the parties had entered into an agreement. Such an agreement can only give rise to creditor’s rights and cannot affect the change in property rights. Hence, Yu’s transfer act is a lawful and valid transfer. Second, the original trial’s findings primarily addressed situations involving unauthorized disposal. However, in this case, there was no unauthorized disposal whatsoever; rather, all changes in land use rights—i.e., property rights—were made by persons authorized to do so. Consequently, Zhao cannot be considered a proper party in this case. The relationship between Zhao and Yu is merely a debt relationship and cannot prevail over the change in property rights. Third, during the proceedings of this case, the court of first instance committed a serious error in its review of the standing of the parties. Initially, the plaintiff in this case was Dalian Real Estate Development Co., Ltd.; Zhao joined the proceedings as a third party only during the course of the trial. According to relevant provisions of the Civil Procedure Law, Dalian Real Estate Development Co., Ltd.’s conduct should be regarded as a waiver of its own litigation rights. Accordingly, the court should have ruled either to dismiss the lawsuit or to reject the claim, or to treat the case as withdrawn, in accordance with the law. As the plaintiff, Dalian Real Estate Development Co., Ltd. had no authority to decide that another party would bear the consequences of the litigation. If Zhao and Yu have a dispute over debts and credits, they should file a separate lawsuit instead of allowing Zhao to continue participating in the litigation as a third party with an independent claim.

This case spanned a long period of time and involved eight court hearings before a final judgment was reached in 2016. Due to the passage of time, it became increasingly difficult to verify circumstances such as the transfer of construction and project-related matters, which posed significant challenges for the attorneys handling the case in gathering evidence and gaining a thorough understanding of the facts. Nevertheless, the attorneys patiently reviewed the case files and meticulously studied the details again and again. They carefully compared and analyzed numerous relevant contracts and legal documents, ultimately presenting a comprehensive chain of evidence that won unanimous approval from the judge and successfully protected the legitimate rights and interests of their client. After enduring 12 years, this case has finally come to a close, becoming a landmark case in the field of property rights protection in our region.