[Handling Attorney] Men Chunxiao

[Keywords]

Subscription / Sale of Commercial Properties / Breach of Contract / Double Compensation / Earnest Money

【Key Points of the Ruling】

Is the “Commodity Housing Reservation Agreement” signed by the plaintiff and defendant legal and valid? Does it constitute a breach of contract? And does it comply with the legal provision requiring double return of the deposit?

[Basic Facts of the Case]

On [date], the plaintiff and the defendant signed the “Commodity Housing Reservation Agreement.” The reservation agreement stipulated that the plaintiff would reserve a property developed by the defendant, located in Dalian. The agreement specified the exact floor and unit number of the property, its estimated area, the unit price per square meter, and the total purchase price. It also stipulated that the payment would be made in full at once. On that same day, the plaintiff paid a deposit, and the defendant issued a receipt accordingly.

After the subscription agreement was signed, both the plaintiff and the defendant have consistently failed to execute a formal “Commodity Housing Sales Contract,” and the project has been delayed in completion, making it impossible to meet the conditions for selling commodity housing.

Based on the foregoing facts, the plaintiff argues that the exercise of rights and the performance of obligations should adhere to the principle of honesty and good faith, and the defendant’s conduct violates the spirit of the contract. The defendant has failed to comply with the contractual agreements and the fundamental business principles of honesty and good faith, constituting a failure to perform contractual obligations and thus should bear liability for breach of contract.

【Judgment Result】

1. Terminate the “Pre-Subscription Agreement for Commercial Housing” signed by both the plaintiff and the defendant;

2. The defendant shall, within fifteen days from the date this judgment becomes effective, return to the plaintiff double the amount of the deposit.

【Reasoning of the Ruling】

The court held that the “Commodity Housing Reservation Agreement” signed by the plaintiff and the defendant is lawful and valid, and both parties should strictly abide by its terms. According to Article 94 of the Contract Law, if one party explicitly states or demonstrates through its conduct that it will not perform the principal obligation, the other party may terminate the contract. In this case, the defendant breached the terms of the Reservation Agreement by reselling the property already reserved by the plaintiff to another party without first notifying the plaintiff to pay the purchase price. By doing so, the defendant clearly indicated its intention not to fulfill the contract. Under these circumstances, the plaintiff’s lawsuit seeking termination of the contract is well-founded in law and has been supported by the court. Furthermore, in accordance with Article 115 of the Contract Law, if the party receiving the deposit fails to perform the agreed-upon obligation, it shall return the deposit double. The contract also expressly stipulates: “During the term of this Reservation Agreement, if Party A sells the property to a third party without Party B’s consent, Party B shall have the right to demand that Party A refund all payments made and return the deposit double.”

[Relevant Statutes]

The Contract Law of the People's Republic of China

Article 94: Statutory Termination of Contract

A party may terminate the contract if any of the following circumstances exists: (1) Force majeure prevents the achievement of the purpose of the contract; (2) Before the expiration of the performance period, one party explicitly states or demonstrates through its conduct that it will not perform the principal obligation; (3) One party delays in performing the principal obligation and, after being urged to do so, still fails to perform within a reasonable period; (4) One party’s delay in performing the obligation or other breach of contract renders it impossible to achieve the purpose of the contract; (5) Other circumstances prescribed by law.

Article 107: Liability for Breach of Contract

If one party fails to perform its contractual obligations or performs them in a manner that does not conform to the agreed terms, it shall bear liability for breach of contract, including continuing performance, taking remedial measures, or compensating for losses.

Article 115: Earnest Money

The parties may, in accordance with the "Guarantee Law of the People's Republic of China," agree that one party shall pay a deposit to the other as security for the debt. After the debtor has performed the obligation, the deposit shall be credited toward the price or returned to the payer. If the party who paid the deposit fails to perform the agreed-upon obligation, it shall have no right to demand the return of the deposit; if the party who received the deposit fails to perform the agreed-upon obligation, it shall return double the amount of the deposit.

[Lawyer’s Perspective]

This case involves a typical dispute over a pre-sale contract for commercial housing—a type of dispute that frequently arises in commercial housing transactions. In fact, the letter of intent to purchase differs essentially from the formal commercial housing sales contract. A letter of intent is a preliminary agreement for the sale and purchase of commercial housing; it is an agreement entered into by equal parties with the purpose of establishing civil rights and obligations related to the sale and purchase of such housing. However, the letter of intent is also an independent contract in its own right. If the letter of intent were directly treated as a formal commercial housing sales contract, developers—with their advantageous position in information—might impose various unreasonable conditions and forcibly compel buyers to perform this “sales contract” or assume liability for breach of contract, thereby seriously harming the interests of the buyers. Therefore, the validity of the letter of intent must be clearly distinguished from that of the definitive contract—the commercial housing sales contract itself.

The crux of this case lies in the evidence-gathering process during its implementation. Since the plaintiff and defendant signed a subscription agreement, and at the time the property had not yet been constructed nor had it obtained pre-sale approval, the property information provided in the agreement was merely the building number arbitrarily designated by the developer—information that differed significantly from the actual address registered with the real estate authorities. Consequently, determining the current state of the property involved in the case proved extremely challenging in practice. This underscores the critical need for lawyers to rely on their extensive experience and precise grasp of relevant information. It also highlights the essential importance of professionalizing the legal profession.

In litigation cases, what matters most during court proceedings is for both the plaintiff and defendant to argue their positions firmly and logically, supported by solid evidence—ensuring that the chain of evidence is tight and complete. At the same time, it’s crucial to be thoroughly familiar with legal statutes and to present arguments that are both well-founded and backed by evidence; only then can one gain the court’s recognition and support.