Background
Our clients were the developer and the trust company for an officetel and office pre-sale project. A purchaser sued, demanding a refund of the down payment already paid on the ground that "the pre-sale contract has been terminated." The purchaser argued that "the developer violated the Building Pre-Sale Act by advertising before filing the pre-sale notification and failed to properly disclose material matters such as seismic design, so the grounds for termination set out in the contract have arisen." The purchaser also disputed liability toward the bank that had extended the interim payment loan, claiming that "no loan obligation exists."
What Was at Stake
Pre-sale projects are subject to dense procedural regulation covering advertising, design and more, so a developer is easily placed in a difficult position once a violation is alleged. Had the purchaser's argument been accepted, our clients would not only have had to refund the down payment; there was also the risk that the same reasoning would spread to other contracts.
How Changchun Helped
Changchun went straight to the core question: had the grounds for termination specified in the contract actually arisen? Under the contract, the right of termination arises only if the developer actually receives a corrective order from the competent authority, or is subject to punishment of a fine or heavier, or to an administrative fine. No such disposition had been made in this case, and the opposing party admitted as much. Changchun made clear that a vague assertion that "punishment is certain to follow in the future" cannot constitute a contractual ground for termination, and further established that the interim payment loan agreement differs from the pre-sale contract in its parties, purpose and character, and is therefore not an ancillary contract whose validity turns on the pre-sale contract.
The court accepted Changchun's arguments and dismissed the purchaser's claims in their entirety (with costs borne by the opposing party). The judgment makes clear that termination is recognized only where the requirements set out in the contract are actually satisfied — not on a vague apprehension that something "might" happen. Our clients preserved the pre-sale contract intact. Outcomes depend on the facts of each case and may differ.