The penetrating determination of false transactions in the "proxy holding" controversy of houses

I. Case Summary

Subject of action: Dispute over confirmation of ownership, dispute over confirmation of invalidity of contract

Court document case numbers: (2021) Hu 0112 Min Chu XX, (2022) Hu 01 Min Zhong XX, (2023) Hu 0112 Min Chu XX, (2024) Hu 01 Min Zhong XX, (2025) Hu 01 Min Shen XX

Plaintiff: Zhang Mou

Defendants: Huang Mou, Tong Mou

Third Party: A certain branch of Industrial Bank Co., Ltd. in Shanghai

Applicable legal provisions: Article 1, Paragraph 2 of the Several Provisions of the Supreme People's Court on the Application of the Time Effect of the Civil Code of the People's Republic of China, as well as Articles 52 and 58 of the Contract Law of the People's Republic of China of 1999.

Key words: Obtaining bank loans, invalid contracts, offsetting debts with properties, holding real estate on behalf of others

In 2006, due to the plaintiff's need for capital turnover, the real estate agent informed them that they could obtain a bank loan through the sale of a house. The plaintiff and the defendant were originally neighbors and friends, and the defendant was willing to cooperate. Therefore, the plaintiff transferred the property located at a certain place on Yili South Road in Minhang District (hereinafter referred to as the "disputed property") to the names of the two defendants, obtaining a bank loan through the false sale of a house. On March 25 of the same year, the defendant entrusted a third party, Ke Mou, to sign the "Shanghai Real Estate Purchase and Sale Contract" with the plaintiff, stipulating a house price of 2 million yuan. On September 13th, the defendant signed a "Personal Housing Loan Contract" with a third party and obtained a mortgage loan of 1.05 million yuan for the house. This sum was used by the plaintiff and will be continuously repaid. On October 25th, the property rights of the house were transferred to the defendant's name, but the original property certificate was held by the plaintiff.

In 2010, the defendant claimed that he had lent out the original property ownership certificate of the house due to the need for his child's further education and had never returned it.

In June 2021, the plaintiff suddenly learned that the defendant was in debt of tens of millions and intended to sell the disputed house to repay the debt. After multiple unsuccessful attempts to contact the defendant, the plaintiff turned to Lawyer Chen Ping from the Shanghai office of Dehe Hantong. Lawyer Chen accepted the agency and initiated the litigation process. And taking this case as an example, share the reference ideas for handling similar cases.

Litigation process

On August 22, 2022, the civil judgment of (2021) Hu 0112 Min Chu XX held that the plaintiff was unable to provide relatively strong proof that he was the actual right holder of the disputed property. Therefore, it was difficult to support the plaintiff's claim to confirm that the property belonged to him, and the judgment dismissed all the plaintiff's litigation requests.

On March 28, 2023 (the appellant was the plaintiff in the first instance), the civil ruling No. (2022) Hu 01 Min Zhong XX held that the basic facts of the original judgment were unclear, revoked the original judgment, and remanded the case for a new trial.

On January 29, 2024, the (2023) Hu 0112 Min Chu XX Civil judgment ruled that the "Shanghai Real Estate Purchase and Sale Contract" signed by the plaintiff and the defendant on March 25, 2006 was invalid, ordered the defendant to cooperate with the third party in handling the mortgage removal procedures, and ordered the house to be restored to the plaintiff's name.

On June 24, 2024 (the appellant was the defendant in the first instance), the civil judgment No. (2024) Hu 01 Min Zhong XX ruled to dismiss the appeal and uphold the original judgment.

On March 21, 2025 (the retrial applicant was the defendant in the first instance and the appellant in the second instance), the (2025) Shanghai 01 Civil Application XX Civil ruling ruled to reject the retrial application of the retrial applicant.

Ii. Core Points of Dispute in This Case

Does the signing of the "Shanghai Real Estate Purchase and Sale Contract" by both parties have the true intention of a purchase and sale contract?

Has there been an agreement between the two parties on "offsetting debts with property"?

Iii. Our Agency Approach and Evidence Strategy

Litigation strategy Adjustment: From "Confirmation of Ownership" to "Contract Invalidity"

The agent lawyer requested a thorough review, with the core issue being the inauthenticity of the expression of intent in the sales contract. The plaintiff is aware that obtaining bank loans through the form of house sales with false expressions of intent is an act that disrupts the financial order. However, adhering to the principle that "substance is more important than form", based on the facts, the plaintiff must truthfully state the facts.

2. Construction of the Chain of Evidence: "Inferring the Expression of Intent from the Act of Performance

The plaintiff's repayment records and transfer vouchers over more than ten years constitute the evidence of loan repayment: The actual borrower of the 1.05 million yuan loan from the bank is the plaintiff, while the defendant is merely the "nominal borrower".

- Property management fee payment voucher: It proves the fact of possession and use. The disputed house has always been actually controlled and resided by the plaintiff.

The defendant has not borne any transaction costs: the tax payment vouchers at the time of the transfer of the disputed property, invoices for deed tax, individual income tax, etc. (the payer is the plaintiff);

- The defendant has no genuine intention to acquire ownership: The defendant has never urged the delivery of the house or demanded its delivery.

Witness statement: It is clearly stated that the purchase and sale of the house was to alleviate the plaintiff's financial strain and was not a genuine transaction, which proves the initial purpose of "obtaining a loan".

- Chat records, emails, notes, etc. : Refute the false statements made by the two defendants. The defendants' statements about the bond amount are contradictory and there is no debt settlement agreement.

3. Refute the defendant's defenses in a targeted manner

In response to the defendant's defense of "debt offset by property" : It emphasizes that the amount of the creditor's rights is inconsistent. First, it claims that the outstanding amount is 2 million yuan, and then it claims 3 million yuan. The uncertainty of the creditor's rights amount makes it difficult to support the claim of debt offset by property. In light of the note signed by both parties in 2014, if the disputed house belongs to the defendant but the defendant is willing to share 55% of the house with the plaintiff, this would be contrary to common sense. The plaintiff holds the statement signed and confirmed by the defendant, who is unable to explain the reason for the collection...... All these contradictory remarks are important bases for overturning the defendant's claim of "offsetting debts with property".

Regarding the defendant's "usage of the disputed house" : If the owner of the house is the defendant, and it has been over ten years since the signing of the house purchase contract, the defendant has never asked the plaintiff to fulfill the obligation of delivering the house, has never actually moved into the disputed house, and the house loan has always been repaid by the plaintiff. The defendant's failure to assert rights and fulfill obligations regarding the house is contrary to common sense.

In response to the defendant's defense that "the signing of the sales contract was a mutual consent of both parties" : whether the house has been transferred does not represent the authenticity of the contract's expression of intent. Our side clearly states that the purpose of this transaction is actually a false sale made by the plaintiff in urgent need of money to obtain a bank loan. Separating the contract for obtaining the bank loan from the house sales contract and claiming that only the loan contract is invalid has no factual or legal basis. From beginning to end, the house purchase contract has been for the purpose of obtaining a loan, and there is no such thing as a purchase agreement at all.

Iv. Judicial Viewpoints (Retrial Stage)

The first instance court held that after the bank mortgage loan for the disputed property was issued, the plaintiff obtained and used the loan of 1.05 million yuan, and was responsible for monthly repayment. This situation does not conform to the general form of a mortgage loan for the sale of a house being repaid by the buyer. After the signing of the disputed sales contract, the defendant failed to pay the purchase price. After the transfer of ownership registration, the plaintiff also did not deliver the house to the defendant, and the defendant did not claim the delivery of the house from the plaintiff. Therefore, the above situation does not conform to the general performance characteristics of a house sales contract. In conclusion, although the plaintiff and the defendant signed a house purchase contract, from the perspective of performance, there was no genuine intention between the two parties to buy or sell the house. The defendant argued that the two parties had reached an agreement to offset the debt with a house (or a property) regarding the fact that the purchase price had not been paid. According to the general characteristics of debt settlement by assets...... However, during the trial, the two parties did not reach an agreement on the amount of the debt, and the defendant also had inconsistent statements regarding the amount of the debt owed to the plaintiff and the amount of debt offset. However, the defendant has no definite evidence to prove that the two parties have reached an agreement on debt settlement by means of assets and have made an agreement on the specific form and amount of debt settlement by means of assets. At the same time, there is no sufficient evidence to prove the specific debt situation between the two parties. Therefore, the defendant's argument that the two parties have reached an agreement on debt settlement by means of assets is not accepted. Regarding the validity of the contract for the sale of the disputed house, although the plaintiff and the defendant have disputes over who the loan is for, both parties can demonstrate the fact that they have obtained a bank loan through the sale of the disputed house. This behavior constitutes concealing an illegal purpose under a legal form. Given that it has been determined that both parties have no genuine intention to buy or sell the house and that the act of using the house to offset debts is difficult to establish, this act of obtaining a bank loan objectively also infringes upon the rights and interests of the third party, Industrial Bank. In conclusion, the "Shanghai Real Estate Purchase and Sale Contract" signed by the plaintiff and the defendant regarding the property in question should be deemed invalid. The defendant is ordered to cooperate with the third party in handling the mortgage removal procedures and the property is ordered to be restored to the plaintiff's name.

The reasons for the second instance's maintenance: The key point of dispute in this case is the validity of the real estate purchase contract in question. The bank mortgage loan was obtained and used by the plaintiff, and the plaintiff was responsible for monthly repayment, rather than the buyer being the defendant. This is inconsistent with the common practice that the buyer is responsible for repaying the mortgage loan for the sale of a house. Secondly, the defendant failed to pay the plaintiff the remaining 950,000 yuan for the house purchase, excluding the actual 1.05 million yuan in bank loans issued. After the property rights of the house in question were transferred, the plaintiff has not delivered the house to the defendant. Up to now, the plaintiff has been residing and using the disputed house, and the defendant has not claimed the delivery of the house or provided sufficient evidence that a lease relationship has been established between the two parties to the plaintiff. Secondly, the defendant claimed that both parties had reached an agreement to offset the debt with the property, but they had no consensus on the amount of the debt, and the 950,000 yuan he claimed to offset the debt did not correspond to the amount of the debt he claimed to owe. The defendant has no definite evidence to prove that the two parties have reached an agreement on debt settlement by property and have agreed on the specific form and amount of debt settlement by property. Therefore, in this case, there is a fact of obtaining a bank loan through the sale of the involved house. This behavior constitutes covering an illegal purpose with a legal form, and the "Shanghai Real Estate Purchase and Sale Contract" signed by the two parties regarding the involved house should be invalid.

V. Practical Implications

1. Penetrating review is the key

The tortuous trial process of this case precisely reflects the deepening understanding of "fake sales" cases in judicial practice. The retrial does not confine itself to the superficial appearance of property rights registration. It explores the true intentions of the parties by comprehensively considering the facts of the entire case, embodying the judicial concept that "substance is more important than form".

2. Evidence is king: Details determine success or failure

The crux of this case lies in the fact that although the plaintiff lacks the "direct evidence" of the proxy holding agreement, they have strung together fragmented evidence such as over a decade of financial transactions and residence certificates into a chain. Even better, the defendant's "triple jump" in the amount of "debt settlement by property" during the three court hearings (890,000 to 2 million to 3 million) was seized upon by the plaintiff to "undermine" the situation on the spot, successfully expanding the credibility of the fact that there was no agreement on "debt settlement by property" between the two parties. In contrast to the defendant's possession of favorable evidence such as "contract + property certificate", the plaintiff, from multiple dimensions including "non-payment, non-possession, and non-exercise of rights", restored the truth of the transaction with objective facts over more than ten years. In particular, the record of continuous loan repayment has become the core evidence for identifying the "actual borrower".

3. The choice of case cause determines success or failure

From "confirmation of rights" to "contract invalidity", precisely anchor the legal basis for "false expression of intent", and avoid getting bogged down in the quagmire of disputes over the determination of illegality.

4. Risk Warning

A realistic warning about the risks of "proxy holding". Even if there is an "unspoken understanding" between the two parties, the nominal home buyer can still have the property held on their behalf seized or executed due to personal debts. The defendant in this case attempted to sell the house after being in debt of tens of millions, which is a true portrayal of the risks of proxy holding. A proxy holding agreement cannot be used against a bona fide third party and is more likely to be deemed invalid due to false expressions of intent.

The cost of indirect financing: Although the plaintiff won the lawsuit in the end, they have endured three years of litigation, borne more than ten years of uncertain risks, suffered tax losses and the possibility of credit damage, and may also face liability from the bank.

Warning: "Fake buying and selling" aimed at obtaining loans is a "lose-lose" behavior. Proxy holding is like "walking on a tightrope". The nominal home buyer is prone to moral hazard, while the actual right holder faces multiple legal risks such as loss of rights and criminal liability.