[Direct answer]In the Beijing area, the right of defense can be exercised when conditions permit, but the supplier cannot arbitrarily stop supplying goods. According to Article 526 of the Civil Code of the People's Republic of China (effective January 1, 2021), when parties owe debts to each other and there is an order of performance, the party who is obligated to perform first may refuse the request for performance if the other party fails to perform its obligations; if the party who is obligated to perform first fails to perform its obligations in accordance with the contract, the other party may refuse to perform its corresponding obligations. Therefore, if the contract stipulates that payment shall be made before delivery, and the other party fails to make payment, the supplier may refuse to deliver goods based on the right of defense of prior performance; if the contract stipulates that delivery shall be made before payment, the supplier should generally perform its obligations first. However, if the other party experiences serious deterioration in its business conditions, the supplier may exercise the right of defense of uncertainty and suspend performance and notify the other party in time. The exercise of the right of defense should have a contractual basis and factual foundation to avoid being deemed a breach of contract.

1. Problem background and typical scenarios

During the performance of the sales contract, if one party fails to make payment and the other party wants to stop supplying goods, this is a frequent dispute between the buyer and the seller. Typical situations include: agreeing to pay upon delivery, where the buyer delays payment after receiving the goods and the seller wants to stop supplying but is worried about breaching the contract; agreeing to pay in advance, where the buyer fails to pay but demands delivery; and in long-term supply relationships, where the buyer repeatedly defaults on payments and the seller wants to suspend future deliveries. In commercial disputes in Beijing, whether the exercise of the right of defense is appropriate directly affects the attribution of liability and the assumption of losses. If it is exercised improperly, the supplier may instead bear breach of contract liability.

II. Key points of contention

Firstly, the order of performance stipulated in the contract, whether it is to pay first or deliver first, determines the type of defense that can be claimed. Secondly, the conditions for establishing and exercising the right of prior performance defense. Thirdly, the application circumstances and notification obligations of the right of unease defense. Fourthly, the counterparty's guarantee requirements and resumption of performance after suspension of performance. Fifthly, the legal consequences of erroneous exercise of the right of defense. Sixthly, the relationship with the right of rescission, the liability for breach of contract, and the handling of competing rights.

III. Professional analysis by Henglue Lawyers

Here are the four practical tips from Henglue Lawyers in handling disputes over sales contracts: 1. Identify the order of performance: According to Article 526 of the Civil Code, if both parties have mutual debts and there is an order of performance, the party that should perform first may refuse the other party’s request to perform if the first party fails to perform. This is the right of defense of prior performance. If the other party’s performance does not comply with the contract, the first party may also refuse the corresponding performance request. 2. Application of the right of defense against uncertainty: According to Article 527, if the party that should perform first has concrete evidence showing that the other party’s business situation has seriously deteriorated, the other party has transferred or hidden assets to evade debts, lost business credibility, or has other circumstances that may lead to a loss of ability to perform debts, the first party may suspend performance but must notify the other party in time. If the other party provides appropriate guarantees, the first party should resume performance. 3. Methods and limits of exercise: The right of defense should be proportional to the other party’s failure to perform or potential loss of performance capacity and should not exceed the necessary scope. The supplier should notify the other party in writing and retain the delivery evidence to avoid being deemed to have stopped supply without a valid reason and constituting a breach of contract. 4. Consequences and remedies: If the exercise of the right of defense causes losses to the other party, the party may bear compensation liability. If the other party fails to restore its performance capacity within a reasonable period and fails to provide appropriate guarantees, the party that suspended performance may terminate the contract and request compensation. In general, suspending supply should be based on contractual provisions and statutory grounds, and the notification obligation must be strictly fulfilled. Henglue Lawyers typically start by clarifying the order of performance and collecting evidence of the other party’s breach of contract or loss of performance capacity to assist clients in lawfully exercising their rights of defense.

IV. Practical suggestions and legal basis

Action suggestions: First, review the performance order and payment conditions stipulated in the contract to determine the types of defenses that can be claimed; Second, if the other party fails to make payments, refuse to perform the corresponding obligations in accordance with the right of defense of performance first and notify the other party in writing; Third, if the other party's business situation deteriorates, collect conclusive evidence, exercise the right of defense of unease and notify the other party; Fourth, if the other party provides appropriate guarantees, resume performance in a timely manner; Fifth, if the other party fails to restore its performance ability for a long time and does not provide guarantees, it can claim to terminate the contract and compensate for losses. For issues related to enterprise operation and contracts, you can refer to the relevant provisions.Business and contract disputes in enterprisesFor matters involving the recovery and enforcement of creditor's rights, you may refer to the following for reference.Creditor's rights and debts, and enforcementLegal basis: Articles 525, 526, 527, and 528 of the Civil Code of the People's Republic of China (effective as of January 1, 2021), and Article 563. The specific application shall be subject to the currently effective laws, regulations, and judicial rulings.

5. Henglue Law Firm's Advice

First, whether to stop supplying depends on the order of performance and the type of right of defense stipulated in the contract. Second, the right of defense of prior performance applies to situations where there is a sequence of performance and the other party fails to perform first. Third, the right of defense of uneasiness applies to situations where the other party is in danger of losing its ability to perform, and there must be concrete evidence and timely notification. Fourth, the exercise of the right of defense should be commensurate with the degree of the other party's breach of contract to avoid excessive suspension of supply. Fifth, if the other party is unable to restore its ability to perform for a long time and fails to provide a guarantee, the contract may be rescinded and compensation may be claimed. For other difficult issues, please refer to the relevant provisions.Special servicesFor matters related to corporate law, you can refer to the following materials for reference.Intellectual property protection and corporate lawFor matters involving the recovery and enforcement of creditor's rights, you may refer to the following for reference.Creditor's rights and debts, and enforcement.

VI. Frequently Asked Questions

Q1: If the buyer refuses to pay, can the seller directly stop supplying the goods?

It depends on the order of performance of the contract. If it is agreed that the buyer shall pay first and the seller shall supply the goods later, the seller may refuse to supply the goods in accordance with the right of defense of prior performance; if it is agreed that the seller shall supply the goods first and the buyer shall pay later, the seller shall, in principle, perform the obligation first, and may only suspend the performance when the conditions for the right of defense of uneasiness are met.

Q2: What is the right of claim in defense of unjust enrichment?

When the party who should perform the obligation first has clear evidence to prove that the other party's business situation has seriously deteriorated, transferred property to evade debts, or lost business credibility, and has lost or may lose the ability to perform the obligation, it may suspend the performance of the obligation, but it shall notify the other party in time.

Q3: Is it necessary to notify the other party when exercising the right of disclaiming performance due to uneasiness?

It is necessary. According to the Civil Code, the party that suspends performance shall notify the other party in a timely manner; if the other party provides appropriate guarantees, the former shall resume performance. If the party fails to notify the other party, it may also bear corresponding responsibilities.

Q4: What are the consequences of stopping the supply due to errors?

This may constitute a breach of contract. If the supplier stops supplying goods without legal or contractual reasons, and causes losses to the other party, the supplier shall bear the liability for compensation; therefore, when exercising the right of defense, the supplier should have sufficient basis and keep the evidence of the notification.

Q5: Can I terminate the contract if the other party refuses to pay all the time?

It is allowed if the conditions are met. If the other party fails to restore its performance ability within a reasonable period of time and fails to provide appropriate guarantees, the party that suspended performance may terminate the contract; in addition, if the other party's delay in payment constitutes a fundamental breach of contract, the party may also claim to terminate the contract.

The above answer is based on the judicial practice in Beijing. The judicial interpretation in other provinces and cities may vary. For specific cases, please refer to the local rules and evidence situation.

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

Disclaimer: This article is compiled based on the current effective laws and regulations and publicly available 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. If you encounter disputes, please consult a practicing lawyer in time.