Real Estate Perspective: Can the high percentage of liquidated damages agreed in the housing sales contract be supported by the court?
Published:
2021-04-24
1. issues raised
In the housing purchase and sale contract, overdue delivery, overdue certification, overdue payment and the liability for breach of contract are essential clauses. In order to ensure the smooth progress of the transaction and the rights and interests of both parties, it is very common to agree on high liquidated damages in the contract for the sale of houses, but in judicial practice, if the amount of liquidated damages is clearly agreed in the contract for the sale of houses, can it be supported by the court? The author will explain through two cases.
2. Case Retrieval
Case 1:(2020) Hu 02 Min Zhong No. 10204
Basic case: Xu moumou is the owner of the house on the 1st floor of XXX, lane XXX, waiqian highway, Jiading district, Shanghai. On March 10, 2019, Xu and Zhong signed a "real estate sales contract", which agreed on the total price of the house of 5.2 million yuan. At the same time, it was clear in the breach of contract that if the buyer Zhong failed to complete the transfer procedures before the agreed date, he would have to pay 20% of the total house price as liquidated damages. Later, due to the buyer's failure to transfer the house as promised, Xu Moumou claimed to the court that Zhong Moumou should pay liquidated damages according to 20% of the total price of the house, while Zhong Moumou requested the court to adjust the liquidated damages with an excessively high proportion.
Court judgment: The court held that the contract's agreement on liquidated damages should not only conform to the true intention of the contracting party, but also follow the basic principles of punitive and compensatory liquidated damages. The court, taking into account the performance of the contract, the degree of breach of contract, the seller's loss and other factors, determined that Zhong XX paid Xu XX liquidated damages of 450000 yuan as appropriate.
Case 2:(2020) Beijing 03 Minzong No. 6126
Basic case: On April 28, 2019, the seller Han Peng and the buyer An Mou signed the "Beijing Stock House Sales Contract". The contract stipulates that the buyer shall pay the seller in 4 installments before August 10, 2019. The full house price is 14 million yuan. Article 7 of the contract stipulates that if the buyer pays more than 30 days late, the seller has the right to unilaterally terminate the contract, and the seller shall pay the seller a breach of contract at 20% of the total house price of 14 million yuan within 15 days of the notice of termination of the contract. Later, because An failed to pay the house payment on time, Han sent a ''Notice of Dissolution of the House Purchase Contract'' to An on August 26, 2019, requesting the termination of the house sales contract, and requiring An to pay him a liquidated damages of 2.8 million yuan. An failed to perform relevant obligations, and Han sued him to the court.
Court judgment: Regarding whether the amount of liquidated damages should be adjusted, the Court held that the liquidated damages clause is the embodiment of the contractual freedom of the subject of the contract, in addition to the punitive and compensatory function of the breach of contract, it should also reflect the principle of pre-certainty and efficiency. The agreed breach of contract reduces the cost of proof of the subject of the contract in the event of a dispute, so that the subject of the contract at the time of the conclusion of the contract is clear consequences of breach of contract, so as to achieve careful contracting and proper performance. In this case, the contract involved in the case clearly agreed that the breach of contract is 20% of the total house price, and An Mou in the litigation request in this case also claimed that Han Peng according to the standard to pay the breach of contract. Now An claimed that the amount of liquidated damages agreed upon was too high, but did not provide evidence to prove it. Therefore, the Court does not support his appeal. The court of first instance ruled that paying Han Peng 2.8 million yuan as liquidated damages has factual and legal basis, and the court upheld it in the second instance.
3. referee point of view
The law supports the parties to agree on the matter of liquidated damages in the case of breach of contract, but the amount of liquidated damages is not entirely based on the autonomy of the parties, and Article 585 of the Civil Code explicitly grants the people's court the discretion to adjust the amount of liquidated damages. In the above two cases, the Shanghai Second Intermediate People's Court and the Beijing High Court made diametrically opposite judgments for the same high proportion of liquidated damages. Through the search and induction of our lawyers, the court tends to make appropriate adjustments to the high proportion of liquidated damages agreed in the housing sales contract, but it is not generalized. Whether the court adjusts the high liquidated damages agreed upon in the contract and the proportion of the adjustment mainly considers the following factors:
1, the actual loss of the contract-keeping party.
The second paragraph of Article 585 of the Civil Code stipulates that if the agreed liquidated damages are excessively higher than the losses caused, the people's court or arbitration institution may appropriately reduce them at the request of the parties. Under this provision, "actual loss" is the basis for the adjustment of liquidated damages. In most housing disputes involving the termination of the contract, an important indicator of the actual loss is the housing price difference. If the seller repents and does not sell, before the termination of the contract, the price of the price rose, the buyer is a loss, or the price of the house fell, the buyer returned not to buy, the seller's expected income loss, and litigation usually through identification to determine the amount of the above-mentioned loss. If the breach of contract is indeed too high after comparison, the court will adjust it in the light of the actual loss, and if the loss is higher than the breach of contract, it will support compensation for the full loss in accordance with the full amount of the contract or in accordance with the breach party's request to change the compensation for the loss.
2. Contract performance
The process of buying and selling houses is very complicated. It has to go through a series of procedures such as the qualification verification of the buyer, the verification of the house source, the release of the mortgage, the net sign, the face sign, the down payment, the transfer of ownership, the delivery of the house, the delivery of the property, and so on. Any link may have a default problem. In judicial practice, in addition to the actual loss, whether the court adjusts the amount of liquidated damages usually takes into account the performance of the contract, for example, whether the impact of the parties' breach of contract on the performance of the contract is simply impossible to perform or defective.
3, the amount of the parties, the fault situation, whether the defaulting party timely stop loss and other comprehensive factors.
If the actual loss of both parties is difficult to determine, the court will also decide whether to adjust according to the amount of the subject matter, the fault situation, whether the breaching party timely stop loss and other comprehensive factors.
Advice from 4. lawyers
1. when the contract for the sale of housing is too high, the court does not necessarily support the amount or proportion of the breach of contract. Therefore, when signing the Contract for the Sale and Purchase of Houses, the amount or proportion of liquidated damages agreed in the contract should not be too high, and in the event of a dispute, the contract-abiding party may claim the direct application of the liquidated damages clause agreed in the contract, reducing the difficulty of proof caused by the court's adjustment of the liquidated damages.
2. the court adjusts the liquidated damages on the basis of actual losses, once there is a breach of contract in the process of contract performance, the parties should pay attention to collecting relevant evidence of their actual losses. Avoid because of the lack of evidence, resulting in their own losses are not recognized.
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