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In October 2009, Beijing Zhuangsheng Real Estate Development Co., Ltd., Cinda Investment Co., Ltd. and China Cinda Asset Management Co., Ltd. Beijing Branch jointly signed an important Framework Agreement.
The agreement stipulated that the Company and Cinda North Branch would jointly restructure the debts of the Company and the Company and realize the debt restructuring by transferring the target land to the Company. According to the agreement, the company paid the transfer price of about 3.3 billion yuan as 30% of the down payment, and required the company to use this money exclusively for land certificate and demolition work. In addition, the agreement also stipulates that the project company will be established by the letter company, which clarifies the respective division of labor between the two parties in the cooperative development. Zhuang Company is responsible for demolition and relocation and the handling of the new four certificates, while Xin Company is responsible for project approval.
After the establishment of the project company, Zhuang Company invested in the shares, accounting for 20% of the shares, and became one of the shareholders of the project company.
However, cooperation has not been easy. Due to the problem of foreign status, Zhuang Company was unable to register shareholders with the local administration for industry and commerce before the project was approved, which caused a series of problems in the cooperation. Xin Company proposed that Zhuang Company designate a civil entity to hold shares on behalf of the company and carry out industrial and commercial registration, but Zhuang Company refused.
Later, the letter company issued a notice that it planned to transfer its equity interest in the project company to a third party. The Zhuang Company protested against this and demanded that the Xin Company withdraw the application for equity transfer, but the Zhuang Company itself did not contribute funds to purchase the shares.
The letter company finally transferred the equity of the project company to a third party through a listing transaction, and promised to cooperate with the company to complete the industrial and commercial registration procedures.
Subsequently, the Zhuang Company filed a lawsuit in court, demanding that the agreement be rescinded and liquidated damages be paid, and that the project company return the proceeds generated by the target plot. The court of first instance rejected Zhuang's request, holding that Xin's pre-emptive right had fully protected Zhuang's pre-emptive right when transferring its shares, and that the transfer of shares itself did not constitute a malicious breach of contract. The company was dissatisfied with the judgment and appealed to the court of second instance.
However, the court of second instance changed its judgment of the first instance, holding that the transfer of equity by the trust company caused the Zhuang Company to be unable to achieve the purpose of the contract, which constituted a bad faith breach of contract.
The court of second instance held that the Framework Agreement stipulated that before Zhuang Company took a stake in the project company, the project company should be a wholly-owned subsidiary of Xin Company, so the equity transfer of Xin Company violated the agreement, making it impossible to achieve the purpose of the contract of Zhuang Company, and then Zhuang Company had the statutory right of rescission.
However, there is considerable controversy over whether this case has a statutory right of rescission. Zhuang claimed that the equity transfer of Xin violated the contract, but the court of first instance held that Xin had notified Zhuang at the time of equity transfer and fully protected the rights and interests of Zhuang. The court of second instance revised its judgment and held that the purpose of the contract could not be achieved, resulting in it having a statutory right of rescission.
In general, equity transfer contracts involve multiple interests, including the transfer of property rights and identity rights. On the issue of rescission of the contract, it is necessary to comprehensively consider whether the main content of the contract has been realized and whether the rescission is in line with the overall benefits of society. Scholars generally believe that in commercial contracts, the right to rescind the contract should be carefully judged to avoid abuse of the right of rescission and maintain the stability of the transaction.
To fundamentally ensure the stability of transactions, it is necessary to emphasize the principle of honesty and trustworthiness and avoid abuse of the right of contract cancellation in commercial transactions. When handling similar cases, the court should comprehensively consider the overall benefits of society and the actual situation of the contract, so as to make a more accurate and fair judgment.