[Title] Case of Enforcement Objection Dispute between XX Housing Development Co., Ltd. and Third Parties Including He Mou and XX Fishery Co., Ltd.

[Keywords] Third-party enforcement objection lawsuit; house sale; purpose of the contract; exercise of right to rescind

【Key Points of the Judgment】 In this case, the plaintiff, XX Housing Development Co., Ltd., was the seller of the property in question and sold it to the defendant, XX Fishery Co., Ltd., for a total price of 76 million yuan. The seller had previously filed a lawsuit with the Shenyang Intermediate People’s Court, demanding that XX Fishery Co., Ltd. pay the remaining 8 million yuan of the purchase price. The Shenyang Intermediate People’s Court ruled that XX Fishery Co., Ltd. must pay the outstanding 8 million yuan, and the case entered the enforcement phase in 2012. The unpaid portion of the purchase price by XX Fishery Co., Ltd. accounted for 10% of the total purchase price. In December 2012, the seller served XX Fishery Co., Ltd. with a notice of contract termination by public announcement. A central issue in this case is whether, given that a final judgment has already been rendered and the enforcement procedure has been initiated, XX Housing Development Co., Ltd. still has the right to exercise its right to terminate the housing sales contract. The Liaoning Provincial Higher People’s Court focused its review on whether XX Housing Development Co., Ltd.’s exercise of its right to terminate the contract complied with legal provisions. The exercise of the right to terminate the contract shall be governed by any agreed-upon terms; if no such agreement exists, it shall be governed by applicable statutory provisions.

【Facts of the Case】 XX Housing Development Company filed a third-party objection to enforcement proceedings with the Shenyang Intermediate People’s Court, requesting that the enforcement against the property in question be halted and that the property be confirmed as its own. In 2015, He, as a creditor of XX Fishery Company, applied for enforcement and had the property in question seized. Relying on its status as the owner of the property, XX Housing Development Company filed an objection to enforcement, seeking to terminate the enforcement proceedings. The Shenyang Intermediate People’s Court dismissed its objection, prompting the company to file the present lawsuit. On June 26, 2001, XX Housing Development Company and XX Fishery Company signed a transfer contract stipulating that XX Fishery Company would purchase properties developed by XX Housing Development Company, with a total transfer price of 76 million yuan. Because XX Fishery Company failed to pay the transfer price of 8 million yuan, XX Housing Development Company filed a lawsuit in 2011 and obtained a final judgment. During the enforcement process, XX Housing Development Company seized the property in question but later terminated the enforcement proceedings on the grounds that no assets were available for execution. The court of first instance held that, since XX Fishery Company currently had no assets available for enforcement, XX Housing Development Company’s litigation rights had not received ultimate redress; furthermore, provided that the rescission did not harm the legitimate interests of the state, collectives, or other parties, nor constituted malicious litigation, the rescission of the contract was proper. Additionally, XX Housing Development Company exercised its right to rescind the contract after the court had concluded the enforcement proceedings in December 2012. According to Article 94 of the Contract Law, XX Housing Development Company exercised its right to rescind the contract in December 2012, when it became aware that the purpose of the contract could no longer be fulfilled; thus, its exercise of the right to rescind was within the one-year limitation period. The Shenyang Intermediate People’s Court ruled in favor of XX Housing Development Company’s request to halt the enforcement proceedings, while dismissing its other claims. He appealed the decision, and the Liaoning Provincial Higher People’s Court found the facts essentially consistent with those established by the court of first instance. During the second-instance proceedings, the court discovered that XX Housing Development Company and XX Fishery Company had submitted multiple letters urging payment of the outstanding 8 million yuan in the dispute over the house purchase contract.

[Judgment Result] The Liaoning Provincial Higher People's Court ruled: Revoke the original judgment and dismiss the claim filed by XX Housing Development Company.

【Reasoning of the Judgment】 The Liaoning Provincial Higher People’s Court held that the central issue in this case is whether XX Housing Development Company enjoys the right to terminate the contract at hand. Since XX Fishery Company failed to make timely payments and sought payment of the purchase price through litigation, the court has rendered a final judgment confirming the creditor-debtor relationship between the two parties. Therefore, the fact that the judgment cannot be enforced does not mean that the original state of rights and obligations can be restored. According to Article 94, Item (4) of the Contract Law—“If one party delays performance of its obligations or commits other breaches of contract resulting in the failure to achieve the purpose of the contract”—the other party may exercise its statutory right to terminate the contract. Given that XX Ocean Co., Ltd. has already paid nearly 90% of the total purchase price, and in accordance with Article 36, Paragraph 1 of the Supreme People’s Court’s Judicial Interpretation on Sales Contracts and Article 167 of the Contract Law, since XX Fishery Company has only defaulted on 10% of the payment, the purpose of the contract has essentially been fulfilled, and thus XX Housing Development Company is not entitled to terminate the contract. Furthermore, pursuant to Article 15 of the Supreme People’s Court’s Judicial Interpretation on the Trial of Disputes over Commodity Housing Sales Contracts, if a party fails to perform its obligations within a reasonable period of three months after being duly notified, that party is entitled to terminate the contract. Since XX Housing Development Company failed to exercise its right to terminate the contract within the reasonable period following the notice, the exclusion period of more than one year has expired, and its right to terminate the contract has thus lapsed. Therefore, XX Housing Development Company does not hold any substantive rights with respect to the property in question and cannot object to enforcement proceedings.

[Relevant Statutes] Article 94 and Article 167 of the Contract Law; Article 36 of the Supreme People's Court’s Judicial Interpretation on Sales Contracts; Article 15 of the Supreme People's Court’s Judicial Interpretation on the Trial of Disputes over Commodity Housing Sales Contracts.

[Lawyer’s Perspective] This case is a typical example illustrating how people’s courts rigorously examine the grounds for contract termination when adjudicating disputes over contract rescission—rather than simply focusing on whether the party that issued the termination notice received an objection from the other party within a reasonable period. In other words, regardless of whether the other party raises an objection, the court must still review whether the party seeking termination actually possesses the right to terminate the contract. Particularly when exercising statutory rights to terminate a contract, the court should conduct an especially stringent review, so as to safeguard transactional stability and maintain normal economic order. Moreover, in cases where one party breaches the contract, both parties may choose either to continue performing the contract or to terminate it. However, since the right to terminate is subject to a limitation period, generally speaking, once a party opts to continue performing the contract, it may inadvertently forfeit its right to terminate in practice. Therefore, parties should exercise caution and carefully weigh their options when deciding whether to exercise their right to terminate.