Mr. Che (a pseudonym) signed a contract with Blue Sky Company (a pseudonym), entrusting them to auction off his vehicle. After the buyer successfully purchased and received the vehicle, they discovered that there were violations that prevented the transfer of ownership. A few months after purchasing the car, the buyer returned it. Blue Sky Company believed that Mr. Che had concealed the vehicle's violations and demanded that he return the sale proceeds along with interest and take back the vehicle. Mr. Che, on the other hand, argued that several months had passed since the vehicle was delivered, exceeding a reasonable period, and compensation for losses should be required. He filed a counterclaim, requesting that Blue Sky Company pay for vehicle depreciation, refund the costs of handling the violations, deduct penalties, and refund commercial insurance fees.

The Haidian Court, after trial, held that Mr. Che, as the principal, failed to fulfill his statutory duty to inform and should bear primary responsibility for the loss. Lantian Company, as the auctioneer, neglected to exercise its right to require the principal to disclose information truthfully and failed to timely detect potential violations associated with the vehicle, which also contributed to the buyer returning the vehicle and requesting a refund. The company should therefore bear secondary responsibility for the loss. Consequently, the court ruled that Mr. Che should pay Lantian Company the proceeds of the vehicle sale and interest, while Lantian Company should return the vehicle and pay part of the depreciation cost. The court did not support Mr. Che’s claims for deductions of liquidated damages and commercial insurance fees.

Case Summary

Lantian Company claims that it operates a used car auction service platform, primarily providing technical services related to used car transactions for buyers and sellers on the platform. Lantian Company signed a contract with Mr. Che, who is the consignor and provider of the vehicle involved in the case on the platform, that is, the seller of the vehicle, and he auctioned the vehicle through the platform. A third party, the vehicle buyer, purchased the vehicle involved in the case through bidding and paid for it via the platform. When the buyer went to handle the transfer of ownership for the vehicle, they discovered that there were unresolved traffic violations, preventing the transfer. The buyer believed that the purpose of the transaction could not be fulfilled and thus requested a refund from Lantian Company. As the platform operator, Lantian Company immediately reported the buyer's refund request to Mr. Che, but he refused. Consequently, Lantian Company refunded the purchase price on behalf of Mr. Che and took custody of the vehicle involved. Mr. Che concealed the true condition of the vehicle, causing damage to the buyer, and Lantian Company, as the auction platform operator, according to the Auction Law and the provisions of the relevant agreement, is entitled to seek compensation from Mr. Che.

Mr. Che argued that he does not accept Blue Sky Company's claim. Blue Sky Company has the obligation to know and understand the information and condition of the vehicle. It knowingly transferred the vehicle to the buyer despite the existing violations. If the transaction was unsuccessful, the vehicle should have been returned promptly. Currently, the depreciation cost, loss in value, and expenses for use and wear and tear of the vehicle should be compensated.

Blue Sky Company argued in its counterclaim that Mr. Che did not disclose that the vehicle had outstanding violations when he entrusted it for auction. According to the evidence submitted by Mr. Che, he only informed the buyer about the unresolved violations after the buyer won the auction for the vehicle. Blue Sky Company has been coordinating and communicating between both parties. Since the violations occurred before Mr. Che entrusted the vehicle for auction, the responsibility for handling the violations should lie with Mr. Che. However, he did not inform the violations in advance or cooperate with the buyer to address them promptly, resulting in the buyer returning the vehicle. Therefore, the company does not agree to bear the vehicle depreciation costs. According to the agreement, Mr. Che breached the contract, and the company has the right to deduct the breach penalty. Mr. Che’s request for Blue Sky Company to refund the insurance fee has no basis.

Court Trial

After trial, the court held that Mr. Che, as the principal, had a statutory duty to inform the auctioneer, Blue Sky Company, of the source and defects of the auctioned vehicle. However, he failed to inform Blue Sky Company about the vehicle's traffic violations when commissioning the auction. After the auction, the vehicle could not be transferred due to these violations. At the same time, Blue Sky Company, as a professional used car auction platform, had the right and obligation to request disclosure of the source and defects of the auctioned vehicle, including whether it had any violations. Based on the existing evidence, Blue Sky Company did not inquire about the vehicle's condition from Mr. Che, such as whether there were unresolved violations, nor did it verify this before listing the vehicle for auction. After the auction concluded, when Blue Sky Company personnel learned of the vehicle violations, they truthfully informed the buyer. Although the buyer agreed and the company collected funds from Mr. Che to resolve the violations, the issues ultimately could not be addressed. In view of this, regarding the losses incurred by Blue Sky Company in refunding the buyer's purchase, interest losses, depreciation losses due to use between the auction and return, and depreciation losses from parking the vehicle, Mr. Che, as the principal, failed to fulfill his statutory duty of disclosure and should bear primary responsibility for the losses. Blue Sky Company, as the auctioneer, failed to exercise its right to require truthful disclosure from the principal and did not discover the potential violations in time. This also contributed to the vehicular return and refund and, therefore, it bears secondary responsibility for the losses.

After the vehicle was sold at auction, the buyer paid Mr. Che the purchase price through Blue Sky Company after deducting relevant fees. Later, because the vehicle could not be transferred due to traffic violations, Blue Sky Company refunded the full purchase amount to the buyer. After refunding the buyer on behalf of Mr. Che, Blue Sky Company had the right of recourse, and Mr. Che should pay interest for the use of the funds. At the same time, once Mr. Che paid Blue Sky Company, the vehicle should be returned to him. Therefore, the court supported Blue Sky Company's claim to have the auctioned vehicle returned by Mr. Che. The amount of vehicle depreciation is mainly determined by mileage, normal wear and tear, accidents, and is also affected by the car market conditions and timing of the transaction, making it difficult to calculate. Based on the evidence available, the specific amount cannot be confirmed, but the loss has occurred. According to the earlier division of primary and secondary responsibilities, it is appropriate to have Blue Sky Company pay Mr. Che part of the vehicle's depreciation costs. Regarding the penalty for breach of contract, it should be deducted according to the contract. Mr. Che did not inform Blue Sky Company about whether the vehicle had commercial insurance when he commissioned the auction; this loss should be borne by him. The court did not support Mr. Che's counterclaim on this matter.

After the judgment, neither party appealed, and the judgment has now come into effect.

Judge's Verdict

According to Article 18 of the "Auction Law of the People's Republic of China": "The auctioneer has the right to require the consignor to explain the source and defects of the auction items. The auctioneer shall inform the bidders of any defects in the auction items." Article 27 states: "The consignor shall inform the auctioneer of the source and defects of the auction items." Article 61 provides: "If the auctioneer or consignor violates the provisions of Paragraph 2 of Article 18 or Article 27 of this law, and fails to inform of defects in the auction items, causing damage to the buyer, the buyer has the right to claim compensation from the auctioneer; if it is the consignor’s responsibility, the auctioneer has the right to seek recourse from the consignor."

Currently, the circulation of second-hand vehicles combined with the platform economy has given rise to new forms of transactions. However, regardless of the form, all parties should adhere to the basic principle of honest trading. When second-hand vehicles are circulated through auctions, the vehicle owner, as the consignor, should truthfully disclose the source and defects of the auctioned vehicle, while the auction company, as a professional second-hand vehicle auction platform, should comprehensively understand the vehicle’s condition and, from a professional perspective, bridge the information gap between buyers and sellers to minimize the risk of unsuccessful transactions.

In addition, Article 591 of the Civil Code provides that if one party breaches the contract, the other party shall take appropriate measures to prevent the loss from increasing; if the other party fails to take appropriate measures, resulting in an increased loss, they shall not claim compensation for the increased loss. Reasonable expenses incurred by the parties to prevent the loss from increasing shall be borne by the breaching party. Article 592 states that if both parties breach the contract, each shall bear the corresponding responsibility. If one party’s breach causes a loss to the other, and the other party is at fault for the occurrence of the loss, the corresponding amount of compensation can be reduced.

When transactions cannot proceed normally, all parties should communicate effectively to prevent further losses and should bear the corresponding responsibility according to each party’s fault for the existing losses. Mr. Che, as the vehicle owner, had the most knowledge of the vehicle’s basic condition but failed to disclose the violations, bearing the primary responsibility. Lantian Company, for failing to fulfill its duty of careful verification, bears secondary responsibility. After disputes arise, both conflicting parties should handle the situation properly to avoid unnecessary losses as much as possible.

(All names mentioned in the text are pseudonyms.)

This article is reprinted from the WeChat public account "Beijing Haidian Court"; we express our gratitude here!