Quandu Law Firm 丨 Interpretation of the Law by Case - What is Assignment and Security?

Case source

Shanghai No. 1 Intermediate People's Court Second Instance (2020) Hu 01 Min Zhong No. 3375

Brief facts of the case

On July 21, 2015, Mr. Han (Party A) and Mr. Huang (Party B) signed the Shanghai Real Estate Sale and Purchase Contract online, stipulating that Party A would sell the disputed house to Party B for a transfer price of RMB600,000 and complete the transfer before October 20, 2015. The parties did not agree on the payment time, nor did they agree on the delivery time. After the signing of the above contract, Huang did not pay Han 600,000 yuan for the house price.

On August 17, 2015, Han and Huang signed a "Letter of Commitment", which was uploaded: I Han temporarily transferred the house involved in the case to Huang's name in the form of mortgage, Huang took out 404,200 yuan to temporarily lend to Han to repay the debts owed by his son Xu, the borrowed item Huang calculated interest at the bank interest rate, and after the loan was paid off in full with the principal and profits, Huang returned the disputed house under his name to Han. Later, Huang registered the property rights of the house and paid 404,200 yuan to Han. Han and his second son Xu still live in the house involved in the case.

On April 17, 2019, Huang and Guo Xinyuan signed the Shanghai Real Estate Sale and Purchase Contract, agreeing to sell the house involved in the case for 1.22 million yuan.

On May 30, 2019, the house involved in the case was registered under Guo Xinyuan's name.

On June 10, 2019, Huang transferred 200,000 yuan to Han.

Hou Han filed a lawsuit: 1. Confirm that the "Shanghai Real Estate Sale and Purchase Contract" signed by the plaintiff and the defendant was invalid; 2. Order the defendant to compensate the plaintiff for losses of 1.02 million yuan.

The result of the referee

On June 18, 2020, the Shanghai No. 1 Intermediate People's Court rendered the (2020) Hu 01 Min Zhong No. 3375 Civil Judgment:

1. Revoke the Civil Judgment of Shanghai Minhang District People's Court (2019) Hu 0112 Min Chu No. 27644; 2. Confirm the invalidity of the Shanghai Real Estate Sale and Purchase Contract signed by Han and Huang on July 21, 2015; 3. Huang return Rmb 539,334 to Han within 15 days of the effective date of this judgment; and 4. Reject the remaining litigation claims of Han.

The court held

1. How to determine the legal nature of the contractual relationship reached by the two parties in respect of the disputed house?

The Shanghai Real Estate Sale and Purchase Contract does not stipulate the delivery and payment time, and although the property rights of the disputed house are formally transferred to Huang's name, Han continues to live, and Huang has not actually paid the house payment. The two parties unanimously confirmed that on August 17, 2015, the two parties signed a "Letter of Commitment", Han borrowed 404,200 yuan from Huang to repay Xu's debts, calculated at the bank interest rate, and if Han was able to return the principal of the loan and the corresponding interest in the future, Huang should return the disputed house to the appellant.

It can be seen that the two parties are not really a transaction of housing property rights, but an act of transfer and guarantee. Since the parties did not have a genuine expression of intent in the house sale and purchase contract at the time of signing the contract, the Shanghai Real Estate Sale and Purchase Contract should be invalid.

2. How should the payment for the sale of the disputed house be settled?

According to Han's statement, he confirmed that Huang had actually fulfilled the obligation of payment stipulated in the Letter of Commitment, and the loan contract relationship between him and Huang for 404,200 yuan had taken effect.

Han mou is aware of the situation of the sale of the house in 2019, and the sale price is also recognized. According to the provisions of the Letter of Commitment, Huang may claim priority repayment of his secured claim for the sale of 1.22 million yuan, but Huang should also return the remaining amount beyond the scope of the principal and interest of the debt.

The parties have not agreed on the settlement of the sale price and the secured claim, and should now be settled in accordance with the provisions of the Letter of Undertaking. Although the two parties have not explicitly agreed on the repayment period, they have reached an agreement to pay interest, but the interest rate standard agreement is not clear. In view of the fact that the disputed house was transferred to the name of an outsider on May 30, 2019, Huang was already able to actually be reimbursed through the sale of the house, it was determined that Han should pay interest from August 17, 2015 to May 30, 2019, and referred to the benchmark interest rate of bank loans for the same period between 2015 and 2019, and determined to pay interest at the standard of 5% per annum as appropriate. Mr. Huang can deduct 404,200 principal, 76,466 yuan of interest and 200,000 yuan of the already paid out of the sale price of 1.22 million yuan. Therefore, Huang should return 539,334 yuan to Han.

Lawyer outreach

1. What is a assignment guarantee?

Assignment security refers to a form of security in which the debtor or a third party transfers the subject matter to the creditor in order to secure the performance of the obligation, and after the debt is paid off, the subject matter shall be returned to the debtor or a third party, and when the debt is not performed, the creditor may be paid for the subject matter.

2. What is the difference between a transfer guarantee and a liquid clause?

Liquid clause refers to the clause in which the parties agree that when signing the mortgage contract or pledge contract, or before the expiration of the repayment period of the creditor's rights, the parties agree that when the mortgagee or pledgee has not been paid off after the expiration of the debt performance period, the ownership of the collateral and the pledge shall be transferred to the creditor.

A liquid clause is a clause in which the parties agree in advance that in the event of the debtor's failure to perform its obligations, the security holder will of course acquire ownership of the subject matter and will not be obliged to liquidate. In the case of a transfer of security, although title to the subject matter has been transferred to the security holder, the security holder does not have a definitive acquisition of title to the subject matter in respect of the relationship between the security holder and the guarantor. In the event of the debtor's failure to perform its obligations, the security holder remains obliged to liquidate, i.e., the security holder should still perform the valuation of the subject matter of the sale or the agreement to pay for the value of the subject matter or the subject matter to satisfy the claim, i.e. when the price of the subject matter exceeds the amount of the secured claim, the excess part is liable to be returned; In the assignment of the guarantee, the ownership is only temporarily transferred, and the liquidation obligation is not exempted, which is the biggest difference between the assignment guarantee and the liquid clause.