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inconsistency between delivered housepromotional material
[2020-08-25]

Court: Functional Positioning of Basement of House Involved Shall be Deemed an Offer and the Seller Shall Be Liable for Breach

[Case Review]

To live with her son and daughter-in-law in the future, Ms. Liu settled on a duplex attached with a free basement with skylights in the north and south. After seeing the model house and the advertising brochure and listening to the sales introduction, Ms. Liu thought the house exactly met her living needs and decided to buy it. However, when the house was delivered two years later, it turned out that there was only a southern skylight and no northern skylight, and the basement was extremely dark. Ms. Liu believed that the real estate company was suspected of false publicity and sued to the Qingpu District People¡¯s Court of Shanghai (hereinafter referred to as the ¡°Court)¡±, requesting a compensation of RMB 250,000 for the loss.

Ms. Liu contends that the basement is an important selling point of the house, and also the main factor leading to her purchase of the house. When the real estate company sold the house, it made an explicit promise: a free basement with two skylights in the south and north to create an all-bright basement. The advertising brochure clearly indicates that the house includes a free basement with skylights. The model house also shows that there are southern and northern skylights in the basement. The sales staff promised that the basement skylights were the same as those of the model house. Therefore, the description and promise of the real estate company should be regarded as an offer and the content of the commodity property sales contract even though there is no agreement on this in the contract. Hence, the real estate company should bear the liabilities for breach.

The real estate company holds that Ms. Liu¡¯s claims lacks basis. The model house and the house bought by Ms. Liu are different in type. There is no point comparing them. In addition, the advertising brochure specially indicates that ¡°the floor plan is only for your reference.¡± The fourth article of the pre-sale contract supplementary clauses I clearly provides that promotional materials do not form a part of the contract and shall not be binding upon both parties.

[Case Study]

The focus of the dispute in the case is whether the description and promise made by the real estate company in respect of the basement skylights of the house involved constitute a part of the pre-sale contract involved.

The Court holds that the promotional material distributed by the real estate company clearly states that there are skylights to create a full-bright basement, and the model house also displays the skylights. The real estate company¡¯s clear functional positioning of the basement attached to the pre-sold house inevitably has a significant impact on the buyer¡¯ decisions to buy the house and their choices of house type, and whether the house purchased comes with the basement and its functions as promised by the real estate company inevitably has a decisive influence on whether the buyers can accept the price of the pre-sold house. Therefore, the above description and promise of the real estate company should be regarded as constituting the content of the pre-sale contract involved.

Regarding the understanding of the relevant content of the fourth article of the contract supplementary clauses I as proposed by the real estate company, the Court holds that the ¡°Promotional materials do not form a part of the contract¡± as stipulated in the supplementary clauses is inconsistent with law and violates the principle of good faith.

The Court determined that the real estate company should compensate Ms. Liu RMB 100,000 based on such factors as the performance of the involved contract and the impact of the limited use of the functions of the basement attached to the house involved on the value of the house.

According to the first paragraph of Article 15 of the Contract Law of the People¡¯s Republic of China, a commercial advertisement is in principle an offer. But in reality, many real estate companies give detailed and explicit descriptions of the houses they sell in their advertisements. Buyers often enter contacts based on such descriptions and promises in these advertisements.

Developers should be cautious in making sales advertisements and promotional materials, as they may be liable for breach if they cannot fulfill the promises and thus result in an excessive gap between their hype and the buyers¡¯ expectation.

The buyers should take care to preserve evidence when seeing model houses. In addition to the house sales contract, model house photos, sand table photos, promotional materials, and advertising brochures can all be kept for subsequent inspection and proof.

[Relevant Laws]

1. Contract Law of the People's Republic of China
Article 8 A legally executed contract has legal binding force on the parties. The parties shall fulfill their obligations as contracted, and may not arbitrarily modify or terminate the contract.
A legally executed contract is protected by law.
Article 15 ...
A commercial advertisement shall, if its content conforms to the provisions regarding offers, be deemed an offer.
Article 60 The parties shall fulfill fully their respective obligations as contracted.
The parties shall observe the principle of good faith and fulfill the obligations of notification, assistance and confidentiality in accordance with the nature and aims of the contract and trade practices.
Article 107 Either party that fails to perform its obligations under the contract or fails to perform them as contracted shall bear the liability for breach of contract by continuing to perform the obligations, taking remedial measures, or compensating for losses.
2. Interpretation of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Cases of Disputes over Commercial Housing Sales Contracts
Article 3 Commercial housing sales advertisements and promotional materials are offers. Sellers¡¯ description and promise in respect of the house and related facilities within the scope of the commodity housing development plan which are detailed and definite and have a great impact on the conclusion of the commodity housing sales contract and the determination of the house price shall also be deemed an offer. Even if the description and promise are not included in the commercial housing sales contract, they should be regarded as the content of the contract. If the party violates the description and promise, it shall be liable for breach.

(Written by Pang Jianqin and Cui Binyu, Qingpu District People¡¯s Court of Shanghai)

 


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