Guiding Case No. 1

Original Judgment(s) leading up to this Guiding Case

CGCP Annotations

Subsequent Cases Referencing the Guiding Case

Full Text of the Guiding Case

Keyword(s)

Main Points of the Adjudication

In an intermediation contract for the sale and purchase of housing, stipulations prohibiting a buyer from using housing information provided by an intermediary company to sign a housing sale and purchase contract with a seller while bypassing the intermediary company are legal and valid. However, when a seller lists the same house for sale through multiple intermediary companies and the buyer can obtain the same housing information through other proper means of which the public can learn, the buyer has a right to choose an intermediary company with a lower quoted price and better service to facilitate formation of a housing sale and purchase contract. Such acts do not [entail the] use of housing information from the intermediary company with whom [the buyer] has previously contracted; therefore, [they] do not constitute a breach of contract.

Article 424 of the Contract Law of the People’s Republic of China

Basic Facts of the Case

Plaintiff Shanghai Centaline Property Consultants Limited (上海中原物业顾问有限公司) (hereinafter referred to as “Centaline Company”), claimed: Defendant TAO Dehua (陶德华), used sale information provided by Centaline Company regarding a certain house [located] at Number X, Zhuzhou Road, Hongkou District, Shanghai Municipality, intentionally bypassed the intermediary, and directly signed, on his own [accord], a housing purchase contract with the seller, violating the stipulations of the Written Confirmation of Request to Buy Real Estate[, a confirmatory contract to purchase real estate through the plaintiff]. [This constituted] an act of malicious “bypassing”. [Centaline Company] requested that the court order TAO Dehua pay, in accordance with the [terms of the parties’] contract, liquidated damages of 16,500 yuan.

Defendant TAO Dehua defended his position, claiming: The original property rights holder of the house involved in this case, a certain LI, had entrusted multiple intermediary companies with selling the house. Centaline Company neither exclusively controlled the housing information nor acted as an exclusive agent in the sale. TAO Dehua did not use the information provided by Centaline Company; there did not exist any act [amounting to] breach of contract by “bypassing”.

The court handled the case and ascertained: In the second half of 2008, the original property right holder, LI, went to multiple housing intermediary companies to list for sale the house involved in this case. On October 22, 2008, a certain real-estate brokerage limited company in Shanghai took TAO Dehua to see the house; on November 23, a certain real-estate consulting limited company in Shanghai (hereinafter referred to as “a certain real-estate consulting company”) took TAO Dehua’s wife, a certain Ms. CAO, to see the house; and, on November 27, Centaline Company took TAO Dehua to see the house and signed the Written Confirmation of Request to Buy Real Estate with TAO Dehua on the same day.

Clause 2.4 of the Written Confirmation stipulated that [where] within six months of TAO Dehua’s examining the real estate, TAO Dehua or [any] person associated with TAO Dehua, including his principal, agent, representative, and undertaker, used information, opportunities, or other such conditions provided by Centaline Company to reach a sale and purchase transaction with a third party without going through Centaline Company, TAO Dehua should pay Centaline Company liquidated damages of 1% of the actual closing price for the sale and purchase of the real estate. At the time, Centaline Company quoted 1.65 million yuan for the house [in question], while the [above-mentioned] real-estate consulting company quoted 1.45 million yuan and actively negotiated with the seller on price. On November 30, under intermediation by this real-estate consulting company, TAO Dehua and the seller signed a housing sale and purchase contract with a closing price of 1.38 million yuan. Later, the buying and selling parties completed the procedure for transferring registration and TAO Dehua paid the real-estate consulting company a commission of 13,800 yuan.

Results of the Adjudication

On June 23, 2009, the Hongkou District People’s Court of Shanghai Municipality rendered the (2009) Hong Min San (Min) Chu Zi No. 912 Civil Judgment: Defendant TAO Dehua should, within ten days of this judgment’s coming into effect, pay plaintiff Centaline Company liquidated damages of 13,800 yuan.

After the judgment was pronounced, TAO Dehua appealed. On September 4, 2009, the No. 2 Intermediate People’s Court of Shanghai Municipality rendered the (2009) Hu Er Zhong Min Er (Min) Zhong Zi No.1508 Civil Judgment:

(1) Repeal the (2009) Hong Min San (Min) Chu Zi No. 912 Civil Judgment of the Hongkou District People’s Court of Shanghai Municipality.

(2) Centaline Company’s litigation claim requesting that TAO Dehua pay liquidated damages of 16,500 yuan is not supported.

Reasons for the Adjudication

In its effective judgment, the court opined:[1] The Written Confirmation of Request to Buy Real Estate signed by Centaline Company and TAO Dehua was of the nature of an intermediation contract, and the stipulation of Clause 2.4 prohibiting “bypassing” was a standard clause commonly found in intermediation contracts for the sale and purchase of housing. The intent of [the clause] was to prevent the buyer from using housing information provided by the intermediary company but “bypassing” the intermediary company to purchase the house so as to make the intermediary company unable to obtain the commission that it deserved. The stipulation did not include circumstances that exempted one party from liability, increased the other party’s liability, or ruled out the other party’s primary rights, and [, thus, it] should be determined to be valid.

According to this clause, the key to determining whether the buyer breached the contract by “bypassing” is to see whether the buyer used housing information, opportunities, or other such conditions provided by the intermediary company. If the buyer did not use the information, opportunities, or other conditions provided by the intermediary company, but obtained the same housing information through other proper means of which the public could learn, the buyer had the right to choose an intermediary company with a lower quoted price and better service to facilitate formation of a housing sale and purchase contract without constituting a breach of contract by “bypassing”. In this case, the original property rights holder listed the same house for sale through multiple intermediary companies; TAO Dehua and his family members separately came to know the same housing information through different intermediary companies and [one of these] intermediary companies facilitated formation of the housing sale and purchase contract. Therefore, TAO Dehua did not use information or opportunities provided by Centaline Company and [his acts] did not constitute breach of contract. Centaline Company’s litigation claim was not supported.

Endnotes

*           The citation of this translation of the Guiding Case is: 《上海中原物业顾问有限公司诉陶德华居间合同纠纷案》(Shanghai Centaline Property Consultants Limited v. TAO Dehua, An Intermediation Contract Dispute), China Guiding Cases Project, English Guiding Case (EGC1), Jan. 9, 2012 Edition, available at http://cgc.law.stanford.edu/guiding-cases/guiding-case-1.

This document was primarily prepared by DAI Di, Richard Jiang, Christine Qingyu Liu, and Randy Wu. The document was finalized by Jennifer Ingram and Dr. Mei Gechlik. Minor editing, such as splitting long paragraphs, adding a few words included in square brackets, and boldfacing the headings to correspond with those boldfaced in the original Chinese version, was done to make the piece more comprehensible to readers. The following text, otherwise, is a direct translation of the original text and reflects formatting of the Chinese document released by the Supreme People’s Court.

The following Guiding Case was discussed and passed by the Adjudication Committee of the Supreme People’s Court of the People’s Republic of China and was released on December 20, 2011, available at http://old.chinacourt.org/public/detail.php?id=472158. See also 《最高人民法院关于发布第一批指导性案例的通知》 (The Supreme People’s Court’s Notice Concerning the Release of the First Batch of Guiding Cases), Dec. 20, 2011, available at http://old.chinacourt.org/html/article/201112/21/472164.shtml.

[1]           Translators’ note: The Chinese version does not specify which court opined. But given the context, this should be the No. 2 Intermediate People’s Court of Shanghai Municipality.