Can a Prior Loan-for-Use Arrangement Still Be Asserted Against a New Owner After the Property Is Sold? — Taiwan Supreme Court Civil Judgment No. 44 of 2026
Can a Prior Loan-for-Use Arrangement Still Be Asserted Against a New Owner After the Property Is Sold? — Taiwan Supreme Court Civil Judgment No. 44 of 2026
As a general rule, a loan-for-use arrangement does not bind a subsequent purchaser of real property. However, a new owner seeking recovery of the property under Article 767 of the Taiwan Civil Code remains subject to the principle of good faith and the prohibition against abuse of rights under Article 148 of the Civil Code.
In practice, it is quite common for a property owner to allow another person to live in a house without paying rent due to family ties, friendship, or other special relationships. For example, parents may reside in a house owned by their children, or a property may be made available to certain relatives on a long-term basis as part of a family property arrangement. In such situations, the parties often do not collect rent, much less enter into a formal lease agreement. Such arrangements may therefore constitute a “loan for use” under Taiwan civil law.
The issue arises because a loan for use is, in principle, merely a contractual relationship between the parties. If the property owner later sells the house, is the new owner still bound by the previous loan-for-use arrangement? Put more simply, can the new owner disregard the prior arrangement and, relying solely on his or her status as owner, require the occupants to vacate the property?
Conversely, if the new owner purchases the property despite knowing that another person has been occupying it for an extended period pursuant to an existing legal arrangement, can the new owner always obtain a court order requiring the occupant to leave by relying on Article 767 of the Civil Code?
Generally speaking, courts tend to recognize that a new owner may rely on Article 767 of the Civil Code to seek recovery of the property from the existing occupants. However, Taiwan Supreme Court Civil Judgment No. 44 of 2026 presents another perspective and further clarifies the relationship among a loan for use, the owner’s right to demand return of property, the prohibition against abuse of rights, and the principle of good faith.
The Supreme Court held:“A loan for use constitutes an obligatory relationship and is effective only between the lender and the borrower. A purchaser of real property does not, as a matter of course, succeed to the loan-for-use relationship between the previous owner and the person occupying the property. However, in a particular case, after taking into account all relevant circumstances, including the parties’ intentions, the circumstances of the transaction, and the manner in which the real property has been used, if the exercise of ownership rights is found to violate the principle of good faith or the public interest, or to have the principal purpose of causing harm to another person, the exercise of such rights should be restricted. Accordingly, where a party raises a defense that the exercise of rights constitutes an abuse of rights or violates the principle of good faith, the court should thoroughly investigate and determine whether such abuse or violation exists, in order to achieve substantive fairness and an appropriate result.”
I. Facts of the Case
The property at issue was originally registered in the name of A, while B and C had occupied and used the property for a long period of time. B asserted that A still owed B more than NT$3.25 million and that the parties had agreed that, until the debt was fully repaid, A would not sell the property to any third party, while B and C would be permitted to continue residing there. The certificate of title was also kept by B.
A subsequently sold the property through a real estate agent to D for NT$8 million.
At the time of purchase, D already knew that the property was occupied by others and had not personally inspected the interior of the property. Taking the existing occupation into account, D purchased the property at a discounted price and agreed to handle the subsequent possession issues and any potential litigation.
After acquiring ownership, D brought an action against B and C under Articles 767 and 179 of the Civil Code, seeking recovery of possession of the property and payment of unjust enrichment equivalent to rent.
During the litigation, D sold the property to E. After acquiring ownership, E assumed the litigation.
Both the first-instance and second-instance courts held that B and C could not assert the loan-for-use arrangement between themselves and A against the purchaser of the property. The courts therefore ordered B and C to vacate and return the property and to pay unjust enrichment equivalent to rent. The case was subsequently appealed to the Supreme Court.
II. Issues
The case primarily involved two legal questions.
First, where a loan-for-use relationship exists between the original owner and the occupants of the property, can the occupants continue to assert that arrangement against a new owner after the property has been sold?
Second, even if a loan for use cannot, as a general rule, be asserted against a purchaser, may the new owner’s exercise of the right to recover the property under Article 767 of the Civil Code nevertheless constitute an abuse of rights or a violation of the principle of good faith in light of the circumstances of the transaction, the parties’ knowledge, and other specific facts of the case?
III. The Supreme Court’s Reasoning
As to the first issue, the Supreme Court maintained the traditional principle of relativity of contractual obligations.
In other words, a loan for use is an obligatory relationship that, in principle, produces legal effects only between the lender and the borrower. Once the property is sold, the purchaser does not automatically succeed to the loan-for-use relationship between the previous owner and the occupants.
Accordingly, this judgment should not be understood as recognizing a principle of “sale does not break a loan for use,” nor does it mean that a purchaser who merely knows that a loan-for-use arrangement exists is automatically bound by that agreement.
However, the Supreme Court held that the analysis does not end there.
Although an owner may, in principle, rely on Article 767 of the Civil Code to demand the return of property from a person who lacks a valid right of possession, the exercise of that right remains subject to Article 148 of the Civil Code, including the principle of good faith and the prohibition against abuse of rights.
In this case, the occupants had argued before the lower courts that the purchaser had never personally inspected the property, that the transaction had been conducted through a real estate agent with no apparent local connection, and that the purchaser may have known that the former owner had made certain commitments concerning the continued use of the property. The occupants also requested that the court examine relevant witnesses and obtain audio and video recordings from the real estate agency concerning the negotiations surrounding the transaction.
The Supreme Court considered these circumstances potentially relevant to whether the owner’s exercise of rights violated the principle of good faith or was primarily intended to cause harm to another person.
Because the lower court entered judgment against the occupants without further investigating these matters, the Supreme Court considered the decision premature, vacated the judgment, and remanded the case for further proceedings.
IV. Analysis: A Loan for Use May Not Bind the Purchaser, but the Exercise of Rights Under Article 767 Is Not Unlimited
The significance of this judgment lies in the Supreme Court’s distinction between two different levels of legal analysis.
The first level is whether the occupant has a legal basis for possession that can be asserted against the new owner.
Under the principle of relativity of contractual obligations, a loan-for-use relationship between an occupant and the former owner generally cannot be directly asserted against a third party who later acquires ownership of the property. The new owner therefore generally has a legal basis to seek recovery of the property under Article 767 of the Civil Code.
The second level is whether the owner may exercise that right in the particular manner asserted.
Even if the occupant has no loan-for-use right that can be directly asserted against the new owner, this does not necessarily mean that every claim brought by the owner under Article 767 must be upheld by the court. The court must still examine, under Article 148 of the Civil Code, whether the specific exercise of the right constitutes an abuse of rights or violates the principle of good faith.
Therefore, the propositions that “a loan for use cannot be asserted against the purchaser” and that “the purchaser must necessarily be entitled to recover possession of the property” are not the same.
In particular, where there are unusual transaction terms, where the purchaser has some degree of knowledge regarding the existing use arrangement, or where the parties have submitted specific facts and evidence suggesting that the acquisition or exercise of ownership rights may have a particular background, the court cannot end its analysis simply by invoking the relativity of contractual obligations.
Instead, the court must further investigate the relevant circumstances and determine whether the owner’s exercise of rights complies with the principle of good faith under Article 148 of the Civil Code.
V. Comments: Formal Ownership Remains Subject to the Principle of Good Faith
Taiwan Supreme Court Civil Judgment No. 44 of 2026 does not alter the basic legal nature of a loan for use, nor does it create an effect similar to the “sale does not break lease” rule under Article 425 of the Civil Code.
What makes this judgment important is the Supreme Court’s reaffirmation that although Article 767 of the Civil Code gives an owner the right to exclude persons who have no lawful basis for possession, the exercise of that right is not completely unrestricted.
Whether the purchaser knew of the prior use arrangement, the extent of that knowledge, how the transaction was negotiated, how the purchase price was determined, how the property was actually being used, and how the purchaser exercised ownership rights after acquisition may all become relevant considerations under Article 148 of the Civil Code.
Accordingly, in cases involving a loan for use and a subsequent transfer of real property, it is not sufficient to ask only, “Who is currently registered as the owner?” Nor is it sufficient to ask only whether the loan-for-use arrangement can be asserted against the new owner.
The court must still carefully investigate the relevant facts and determine whether the owner’s specific exercise of rights under Article 767 complies with the principle of good faith and does not constitute an abuse of rights. This is also the central significance of the Supreme Court’s decision to vacate the lower court judgment and require further factual investigation.
For persons who have allowed others to live in property registered in their name without rent because of family ties, friendship, or other special relationships, the process of recovering the property should likewise not be approached on the assumption that simply selling the property to a third party and having the new owner demand that the occupants leave will automatically eliminate the legal issues arising from the prior use arrangement.
The parties must still carefully consider the pre-existing legal relationship, the circumstances surrounding the transfer of the property, and the applicable legal rules, and should exercise their rights in a lawful manner consistent with the principle of good faith.
This article is provided solely for general informational purposes and is intended to help readers understand basic legal concepts under Taiwanese law. It does not constitute legal advice, legal opinions regarding any specific case, or create an attorney-client relationship between the reader and the author or this law firm.Every legal matter is unique. The applicable law, available evidence, procedural posture, and factual circumstances may differ significantly from one case to another. Even where similar legal issues arise, the appropriate legal analysis and strategy may vary depending on the specific facts. Accordingly, if you are involved in a legal dispute or require legal advice regarding a particular matter, you should consult a qualified attorney to obtain advice tailored to your individual circumstances.In addition, statutes, regulations, judicial decisions, and legal practice may change over time. This article reflects Taiwanese law and prevailing legal practice as of the date of publication (or the most recent update). Subsequent legislative amendments or developments in judicial practice may affect the accuracy or continuing applicability of the information contained herein. Readers are therefore encouraged to consult the latest legal authorities or seek professional legal advice before relying on this article.
