[Title] Plaintiff Hai Mou v. Defendant Wu Mou and Third Party Sun Mou: Dispute over a Third-Party Objection to Enforcement in an Outside-Litigation Case

[Keywords] Civil/Third-party objection to enforcement/Loan-based home purchase

【Key Points of the Ruling】

This case is one of the relatively frequent third-party enforcement objection lawsuits that have emerged over the past two years. After purchasing a property, the buyer was unable to complete the name transfer and registration procedures for various reasons. Now, due to the seller’s financial disputes, the property has been seized by the court. To safeguard their legitimate rights and interests, the buyer has filed a third-party enforcement objection lawsuit. This case involves a mortgage purchase, and it is governed by Article 28 of the “Provisions of the Supreme People’s Court on Several Issues Concerning the Handling of Enforcement Objections and Review Cases by People’s Courts.”

[Basic Facts of the Case]

The plaintiff is a third party who has filed a lawsuit objecting to the enforcement proceedings; the plaintiff is the purchaser of the property subject to enforcement. The defendant is the applicant for enforcement and the creditor of the seller of the property subject to enforcement. The third party is the judgment debtor—the seller of the property subject to enforcement. There exists a creditor-debtor relationship between the defendant and the third party, confirmed by a final and effective court judgment. The defendant is the creditor, and the third party is the debtor. When the third party failed to perform its debt obligation upon maturity, the defendant applied for enforcement. During the litigation preservation phase, the defendant immediately seized the property, and the plaintiff has consistently raised objections. In the enforcement stage, the plaintiff’s objection to enforcement was dismissed by the court’s ruling. Subsequently, the plaintiff filed a lawsuit as a third party objecting to the enforcement proceedings with the court.

The basic facts of this case are as follows: The third party purchased the property in question by obtaining a bank loan. On April 24, 2013, the third party paid the initial down payment to the developer. On May 25, 2013, the third party signed a “Property Purchase Agreement” with the plaintiff. On October 8, 2013, the plaintiff transferred 8 million yuan for the purchase price to the account designated by the third party through a corporate account. On October 16, 2013, the plaintiff transferred another 7 million yuan for the purchase price to the same designated account via the corporate account of the plaintiff’s relative. On November 11, 2013, the plaintiff transferred 5 million yuan for the purchase price to the designated account through the corporate account of the plaintiff’s relative. On November 26, 2013, the third party formally signed a commodity housing sales contract with the developer, and both properties were registered under the third party’s name. On December 31, 2013, the third party signed a “Personal Housing Loan Contract” with the bank. On February 17, 2014, the plaintiff and the third party signed a “House Purchase and Sale Contract” and notarized it; on the same day, the third party issued a “Receipt” to the plaintiff. On March 24, 2014, the third party submitted to the bank a “Application for Early Repayment (Settlement) of Personal Loan from China Construction Bank,” as the plaintiff, having purchased the property, wished to repay the loan ahead of schedule. On April 15, 2014, the plaintiff submitted to the property management company an application for early handover of the property; according to the contract, the agreed-upon handover date was June 30, 2015. On May 9, 2014, the property management company replied that early handover was permissible.

On August 14, 2014, the defendant applied for property preservation in a civil loan dispute involving a third party, resulting in the seizure of the property at issue. In September of the same year, the plaintiff filed an objection to the preservation order with the judge presiding over the civil loan case, but the objection was rejected. After the civil loan case entered the enforcement phase, the plaintiff again submitted an objection to the enforcement proceedings to the enforcement judge, which was dismissed. Consequently, on November 18, 2015, the plaintiff filed a lawsuit as a non-party challenging the enforcement proceedings—this is the present case.

【Judgment】 The court of first instance ruled to halt the enforcement against the property. The court of second instance upheld the original judgment.

【Reasons for the Ruling】

According to Article 28 of the “Provisions of the Supreme People’s Court on Several Issues Concerning the Handling of Execution Objections and Review Cases by People’s Courts,” in monetary-creditor enforcement proceedings, if a purchaser raises an objection to real estate registered under the name of the judgment debtor and such objection meets any one of the four specified conditions and the purchaser’s rights can be exempted from enforcement, the People’s Court shall uphold the objection. First, a legally valid written sales contract must have been signed prior to the seizure by the People’s Court. In this case, the seizure date of the property involved was August 14, 2014; however, the plaintiff and the third party had already signed the house purchase contract on February 17, 2014, and the contract had been notarized by a notary office. Second, the purchaser must have lawfully occupied the real estate prior to the seizure by the People’s Court. The property involved had been substantially completed and ready for actual use as early as April 2014. On April 15, 2014, the plaintiff applied for early occupancy to store belongings and begin interior design work. In May 2014, the plaintiff moved into the property and carried out preliminary renovations. Third, the full purchase price has been paid, or part of the purchase price has been paid according to the contract terms, with the remaining balance being delivered for enforcement as required by the People’s Court. In this case, the third party obtained the loan to purchase the property, while the plaintiff paid the down payment directly to the third party and made monthly payments into the third party’s account toward the loan. Although the plaintiff applied for early repayment, the bank refused to accept it, thus preventing the transfer of ownership registration. Fourth, the failure to complete the transfer registration was not due to the purchaser’s own fault. The property in question was purchased with a loan, and the bank did not accept early repayment. Moreover, prior to the court’s seizure, the property did not meet the initial registration and filing requirements, making it objectively impossible to complete the transfer procedures—circumstances that were entirely beyond the plaintiff’s control. Therefore, this case satisfies the requirements set forth in Article 28 of the “Provisions of the Supreme People’s Court on Several Issues Concerning the Handling of Execution Objections and Review Cases by People’s Courts.”

[Relevant Statutes]

Article 28 of the “Provisions of the Supreme People’s Court on Several Issues Concerning the Handling of Cases Involving Objections and Review Applications in Enforcement Proceedings” provides that, in enforcement proceedings involving monetary claims, if a purchaser raises an objection to real property registered under the name of the judgment debtor and such objection meets the following conditions and the purchaser’s rights can be exempted from enforcement, the people’s court shall uphold the objection:

(1) A legally valid written sales contract was signed before the people’s court imposed the seizure;

(2) The real property was lawfully occupied prior to its seizure by the People’s Court;

(3) The full purchase price has been paid, or a partial purchase price has been paid in accordance with the contract terms, and the remaining balance has been delivered for enforcement as required by the People’s Court.

(4) The failure to complete the transfer registration was not due to reasons attributable to the buyer himself/herself.

[Lawyer’s Perspective] This case is a relatively common type of third-party objection to enforcement proceedings that has emerged over the past two years. While it is a typical third-party objection case, it also possesses certain unique characteristics. The plaintiff organized evidence item by item in accordance with Article 28 of the “Provisions of the Supreme People’s Court on Several Issues Concerning the Handling of Enforcement Objections and Review Cases by People’s Courts.” This article stipulates that, in cases involving the enforcement of monetary claims, if a purchaser raises an objection to real estate registered under the name of the judgment debtor and such objection meets any one of four specified conditions and the purchaser’s rights can be exempted from enforcement, the People’s Court shall grant support. First, a legally valid written sales contract must have been signed before the property was sealed by the People’s Court. In this case, the property in question was sealed on August 14, 2014; however, the plaintiff and the third party had already signed the house purchase contract on February 17, 2014, and the contract had been notarized by a notary office. Second, the purchaser must have lawfully occupied the real estate prior to its seizure by the People’s Court. The property in question was substantially completed and ready for actual use as early as April 2014. On April 15, 2014, the plaintiff applied for early occupancy to store belongings and begin interior design work. In May 2014, the plaintiff moved into the property and carried out preliminary renovations. Third, the full purchase price must have been paid, or a portion of the price must have been paid according to the contract terms, with the remaining balance being delivered to the court’s enforcement authority as required. In this case, the third party obtained the loan to purchase the property, while the plaintiff paid the down payment directly to the third party and made monthly payments toward the loan account. Although the plaintiff applied for early repayment, the bank refused to accept the early repayment, thus preventing the transfer of ownership. Fourth, the failure to complete the property transfer registration was not due to the purchaser’s own fault. The property was purchased via a mortgage loan, and the bank refused to accept early repayment. Moreover, prior to the court’s seizure, the property did not meet the initial registration and filing requirements, making it objectively impossible to complete the transfer procedures—circumstances entirely beyond the plaintiff’s control.

The particularity of this case lies in the fact that the property involved was purchased with a mortgage, and the plaintiff moved into the property ahead of the delivery date stipulated in the contract by submitting an application, thereby gaining possession of the property.