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Court finds contract masked personal loan

By Lu Chen (Global Times)

11:08, July 23, 2012

A local court has ruled that a man who borrowed 350,000 yuan ($54,913) from another resident didn't have to pay an exorbitant 350,000 yuan in interest for the seven-month loan because their agreement was illegal, the Shanghai Changning District People's Court announced Sunday.

The court found that their contract was invalid because the two parties disguised what was actually a personal loan as a home purchase, according to a press release from the court.

In April 2010, the lender, who was only identified as a woman, signed a contract in which she agreed to pay the borrower 350,000 yuan as a "deposit" to purchase his house, the court said. However, the court later found that woman never intended to buy the house. The deposit was simply a cash loan that the borrower would repay when he returned the deposit seven months later.

The contract allowed the woman to back out of the purchase and reclaim her deposit before November 30, 2010, according to the press release. However, if the man could not refund the deposit at that time, he had to pay her a penalty.

When the man failed to return the deposit on November 30, the woman filed a lawsuit against him for breaking the contract. She demanded that he pay her the original 350,000 yuan deposit, plus a penalty of 350,000 yuan, plus interest until he repaid the total amount, according to the press release.

However, the court ruled that the contract was invalid because it did not accurately represent the intensions of the parties. For example, the court discovered during the hearings that the lender did not know specific details about the apartment she was supposed to be purchasing. It was simply a high interest loan agreement, according to the press release. "The interest rate that the lender required exceeded the rate permitted by law," said Zhang Weicong, a press officer of Shanghai Changning District People's Court.

The court ordered the woman to pay the borrower's court fees, which amounted to 43,200 yuan.

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