“From Lease to Sale”: Online Phone Rental Dispute Erupts as Lessee Defaults on Payments
"Lease-to-Own" Model Tested: Court Upholds Contract Terms in Phone Rental Default Case
Haian, China – As smartphone prices soar and upgrade cycles accelerate, consumers are increasingly turning to credit-based phone leasing platforms that require no deposit. However, a recent case adjudicated by the Haian People's Court highlights the legal risks when users default on payments under "try before you buy" arrangements that commonly include overdue buyout clauses.
The dispute involved a user ("Party A") who leased a new smartphone through an online platform ("Party C") from a merchant ("Party B"). The one-year lease totaled 5,400 RMB in rentals, with a 5,500 RMB device deposit. The electronically signed agreement stipulated:
Prepayment of the 1st, 11th, and 12th installments before shipment
Automatic conversion from lease to purchase if payments were overdue for more than 7 days
Buyout price calculated as: Device deposit minus paid deposits
Requirement to pay the buyout within 7 days of formal notification
After receiving the phone, Party A defaulted starting from the 5th installment. Despite repeated reminders, Party A refused payment, triggering the buyout clause. The merchant then sued for contract enforcement.
The court upheld the agreement as legally binding, ruling that:
The lease-purchase conversion was validly activated upon default
Party A owed the 5,500 RMB buyout price
The merchant must refund prepaid rentals for unused periods (11th and 12th months)
The net payable was adjusted to reflect this credit
Judge's Commentary
"Lease contracts require users to pay rentals as agreed. When lessees unjustifiably default, merchants may terminate the agreement after granting a reasonable grace period."
"The digital age treats credit scores as personal reputational portraits. We remind citizens to honor contractual obligations to avoid damaging their credibility and lifestyle."
Source: Haian People's Court (Reporter: Xue Jingxian)
Key Takeaways for Industry Participants:
Lease-to-own models carry enforceable legal consequences
Courts will enforce automated conversion clauses while ensuring fairness
Credit-based leasing depends on contractual integrity and user responsibility
Platform design should ensure clear communication of default terms
This case establishes important precedent for China's growing device-as-a-service market, balancing merchant protection with consumer fairness in default situations.
