[Direct answer]In the Beijing area, when the party who is to perform the obligation first has conclusive evidence proving that the other party has lost or may lose the ability to perform the obligation, it may suspend the performance of the obligation and notify the other party in time. According to Article 527 of the Civil Code of the People's Republic of China, the party who is to perform the debt first may suspend the performance of the obligation if it has conclusive evidence proving that the other party has one of the following circumstances: a serious deterioration in the operating conditions; transferring property or withdrawing funds to evade debts; losing business credibility; or other circumstances in which the ability to perform the debt has been lost or may be lost. If the party fails to suspend the performance of the obligation with conclusive evidence, it shall bear the liability for breach of contract. Article 528 of the Civil Code stipulates that after suspending the performance of the obligation, the party shall notify the other party in time. If the other party provides appropriate guarantees, it shall resume the performance of the obligation; if the other party fails to resume the ability to perform the obligation within a reasonable period of time and fails to provide appropriate guarantees, it shall be deemed that the other party has indicated by its own actions that it will not perform the main debt. The party who suspended the performance of the obligation may rescind the contract and request the other party to bear the liability for breach of contract.

1. Problem background and typical scenarios

In sales contracts, contractor contracts, or long-term supply agreements, the party with the obligation to perform first may discover that the other party's business is deteriorating, there is a widespread problem of arrears, or the other party is embezzling funds. Continuing to perform the contract may result in the loss of all investments, while stopping performance without authorization may lead to being held liable for breach of contract. The right of counter-performance is precisely designed to balance this risk: the party with the obligation to perform first may suspend performance when there is conclusive evidence, but must meet certain conditions and fulfill the obligation to notify the other party. Otherwise, they may face liability for breach of contract. In practice, how to obtain "conclusive evidence," how to notify and wait for guarantees, and when to terminate the contract are the key issues in the exercise of this right.

II. Key points of contention

The dispute focuses on four aspects: first, the applicable subjects and circumstances. The party performing its obligations first must have clear evidence to prove that the other party is in a legally prescribed situation; second, the obligation to suspend performance and notify the other party, and the consequences of failing to notify or providing insufficient evidence; third, the provision of guarantees and resuming performance. What kind of guarantees are considered "appropriate"; fourth, the termination of the contract and the liability for breach of contract. In practice, courts usually review whether the evidence is accurate, whether the notification is timely, and whether the follow-up handling is appropriate.

III. Professional analysis by Henglue Lawyers

The first layer concerns the applicable subject and statutory circumstances. The right of non-performance defense shall be exercised by the party who should perform the obligation first; the statutory circumstances include the other party's serious deterioration in business conditions, transfer of assets or withdrawal of funds to evade debts, loss of business reputation, and other circumstances of losing or possibly losing the ability to perform debts. The second layer focuses on the requirement of conclusive evidence. The core lies in "conclusive evidence", which refers to materials that can objectively prove the above-mentioned circumstances, such as financial deterioration and litigation enforcement information, fund transfers related to asset transfer, and public records of loss of business reputation. Suspending performance solely based on subjective speculation or hearsay may constitute a breach of contract. The third layer involves the suspension of performance and the obligation to notify. Suspending performance under the specified conditions does not constitute a breach of contract, but the party concerned shall promptly notify the other party, explain the reasons for the suspension, and provide corresponding evidence. Failure to notify or inability to prove the evidence's authenticity afterward will result in the risk of bearing breach of contract liability. The fourth layer concerns guarantees and resumption of performance. If the other party provides appropriate guarantees, the party shall resume performance. "Appropriate" refers to guarantees with sufficient amount, form, and credibility to ensure debt repayment, which shall be determined by the parties or the court based on the specific circumstances. The fifth layer deals with contract termination and claims. After suspending performance, if the other party fails to resume performance capability within a reasonable period and fails to provide appropriate guarantees, it shall be deemed that the other party has indicated by its own actions that it will not perform the main obligations. The party suspending performance may terminate the contract and request the other party to bear breach of contract liability. In practice, it is recommended that the party who should perform the obligation simultaneously fix evidence, notify in writing, and retain delivery receipts when exercising its rights, and promptly claim termination and compensation when necessary. When handling contract disputes, our firm typically organizes evidence around the authenticity of evidence, timeliness of notification, and appropriateness of subsequent handling to help clients assess the legality and risks of exercising their rights.

IV. Practical suggestions and legal basis

The first step is to collect objective evidence proving that the other party's business has deteriorated, that they have transferred assets, or that they have lost the ability to perform their obligations. The second step is to suspend performance on the basis of conclusive evidence and immediately notify the other party in writing, explaining the reasons. The third step is to observe whether the other party provides appropriate guarantees, and if so, resume performance; if the other party fails to restore their ability and provide guarantees, the contract may be terminated after a reasonable period and breach of contract liability may be claimed. The fourth step is to retain evidence and delivery receipts throughout the process to avoid assuming breach of contract liability due to insufficient evidence or failure to notify the other party. Main legal basis: Article 527 of the Civil Code of the People's Republic of China (Conditions and Burden of Proof for the Right of Counter-Performance), Article 528 (Notification, Guarantees, Resumption of Performance, and Termination), Article 526 (Right of Counter-Performance in Advance), and Article 563 (Legal Circumstances for Termination); the above provisions will come into effect on January 1, 2021. Specific applications shall be subject to the currently effective regulations.

5. Henglue Law Firm's Advice

The three key points of the right of disaffirmation: The party who performs first must have conclusive evidence to suspend performance, and if the evidence is insufficient, they shall bear breach of contract liability; after suspending performance, they shall notify the other party in a timely manner, and if the other party provides appropriate guarantees, they shall resume performance; if the other party fails to resume performance for a long time and fails to provide guarantees, they may terminate the contract and claim compensation. For matters related to contracts and corporate affairs, you can consult a lawyer for professional advice.Business and contract disputes in enterprisesThe service provides a comprehensive solution, which involves the recovery of funds and the execution of legal actions, which can be combined togetherDebt recovery and enforcementFor plates involving financial and guarantee businesses, you can refer to the following for referenceFinancial capital and cross-border transactions involving foreign entitiesThe column provides consultation on difficult commercial disputesSpecial servicesTeam.

VI. Frequently Asked Questions

Q1: How should the right of disquieting defense be exercised?

When the party who performs the obligation first has concrete evidence proving that the other party's business has deteriorated, transferred property, or lost the ability to perform the obligation, it may suspend the performance and notify the other party in time; if the other party provides appropriate guarantees, it shall resume the performance, otherwise, it may terminate the contract and claim compensation after a reasonable period of time.

Q2: What evidence do I need to prepare to exercise the right of defense against uncertainties?

Objetive materials proving that the other party's business conditions have seriously deteriorated, that they have transferred or concealed their assets, lost their business credibility, or lacked the ability to perform their obligations, as well as the notice of suspension of performance and the proof of service delivery.

Q3: Are the costs of such disputes high?

For cases with clear evidence, the cost is manageable, and the fees are charged based on the amount in dispute. Clients can negotiate with lawyers to pay in stages, and the specific payment terms shall be subject to the provisions of the contract of entrustment.

Q4: How long will it take to finalize the transaction after exercising the option?

If the other party provides a guarantee and resumes performance, the dispute will be resolved quickly. If the other party neither resumes performance nor provides a guarantee, the contract can be terminated after a reasonable period and compensation can be claimed. Litigation usually takes several months.

Q5: What will happen if I stop performing my obligations without any evidence?

If there is no conclusive evidence to justify the suspension of performance, the party shall bear the liability for breach of contract. It is necessary to first collect evidence and send a written notice before suspending performance, so as to avoid going from being in the right to being in breach of contract.

The above content is based on the compilation of judicial practices in the Beijing area. The facts of individual cases and the jurisdiction of the court may affect the conclusions. Welcome to consult Henglu Law Firm for specific situations.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, so as to avoid missing the statutory time limit. →Corporate commercial legal services·Beijing Henglu Law Firm

Disclaimer: This article is compiled based on the current effective laws and regulations and open adjudication rules, and is for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. In the event of a dispute, please consult a practicing lawyer in time.