[Direct answer]In the Beijing area, the performance of the contract can be suspended when there is conclusive evidence, but the other party should be notified in a timely manner. According to Article 527 of the Civil Code of the People's Republic of China (effective January 1, 2021), if the party obliged to perform the debt first has conclusive evidence to prove that the other party's business situation has seriously deteriorated, transferred or embezzled funds to evade debts, lost business credibility, or has other circumstances of losing or possibly losing the ability to perform the debt, the party may suspend the performance of the debt; if the party does not have conclusive evidence to suspend the performance of the debt, it shall bear the liability for breach of contract. Article 528 of the Civil Code stipulates that after suspending the performance of the contract, the party shall notify the other party in a timely manner. If the other party provides appropriate guarantees, the performance of the contract shall be resumed; if the other party fails to resume the ability to perform the contract 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 suspending the performance of the contract may rescind the contract and request the other party to bear the liability for breach of contract.

I. Problem Background and Typical Scenarios

In long-term purchase and sales contracts, contracting and construction projects, etc., if one party is concerned that the other party may be unable to make payments due to a deterioration in its operating conditions, it often considers suspending performance to minimize losses. Typical situations include: rumors of the buyer experiencing a cash flow crisis, with the seller having already prepared the goods in advance; the other party being listed as a person of dishonesty subject to enforcement; and the other party transferring assets or suspending production and business operations. In commercial transactions in the Beijing area, how to legally suspend performance without constituting a breach of contract requires accurately grasping the applicable conditions and procedures of the right of defense against uncertainty. Otherwise, the party seeking protection may instead become the party in breach of contract.

II. Key points of contention

First, what circumstances constitute "loss or potential loss of ability to perform obligations". Second, what is meant by "concrete evidence", and whether hearsay or general speculation can support the suspension of performance. Third, the obligation to notify of the suspension of performance and the conditions for resuming performance. Fourth, the form of the counterparty's provision of guarantees and the assessment of their appropriateness. Fifth, the connection between the suspension of performance and the right of rescission, as well as compensation for losses. Sixth, the breach of contract liability and risk control arising from the improper exercise of the right of counterclaim for uncertainty.

III. Professional analysis by Henglue Lawyers

Here's the translation of the Chinese (Simplified) sentence into English, with detailed explanations: \nHenglue Lawyers offer four practical tips on contract performance disputes. First, the applicable circumstances are statutory: According to Article 527 of the Civil Code, the circumstances under which the right of defense against uncertainty can be exercised include the serious deterioration of the other party's business situation, the transfer or concealment of assets to evade debts, the loss of business credibility, and other circumstances where the debtor may or will lose the ability to fulfill their obligations. However, this right is conditional on the debtor's obligation to fulfill their debt obligations first. Second, the requirements for substantiating claims are strict: To exercise the right of suspension of performance, there must be "concrete evidence" such as enforcement notices, bankruptcy applications, production suspension announcements, asset transfer records, or a large number of overdue debts. Relying solely on rumors, speculations, or general market information is difficult to constitute a legitimate reason, and may even result in liability for breach of contract. Third, the procedural obligations are clear: After suspending performance, the debtor should promptly notify the other party and explain the reasons. If the other party provides appropriate guarantees, the debtor should resume performance. If the other party fails to restore their performance ability within a reasonable timeframe and fails to provide appropriate guarantees, the debtor may terminate the contract and request compensation. Fourth, risk control: Enterprises should improve the payment and guarantee clauses in contracts, stipulate financial information disclosure, accelerated maturity, and guarantee mechanisms. Once risk signals are detected, promptly secure evidence, issue written notifications, and evaluate solutions with professional lawyers. Overall, the right of defense against uncertainty is a legitimate tool for managing transaction risks, but it must be based on concrete evidence and standardized procedures. Henglue Lawyers typically assist clients in legally mitigating losses by focusing on evidence preservation, drafting notifications, and designing termination strategies.

IV. Practical suggestions and legal basis

Action suggestions: First, identify the risk signals of the other party's deteriorating business situation and collect accurate evidence such as execution information, bankruptcy materials, and asset changes in a timely manner; Second, confirm whether you are the party that should perform first and evaluate whether you can exercise the right of defense against uncertainties; Third, immediately notify the other party in writing after suspending performance, explain the reasons and keep the evidence of delivery; Fourth, if the other party provides appropriate guarantees, you should resume performance to avoid being deemed in breach of contract and stopping supply; Fifth, if the other party fails to restore its performance ability and provide guarantees for a long time, you can terminate the contract and claim breach of contract liability. 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 527, 528, 563, and 577 of the Civil Code of the People's Republic of China (effective as of January 1, 2021). The specific application shall be subject to the currently effective laws, regulations, and judicial rulings.

5. Henglu Law Firm's Reminder

Firstly, the exercise of the right of defense against uncertainty presupposes that the other party is in a legally defined situation of losing the ability to perform the contract. Secondly, there must be concrete evidence. If the suspension of performance is based solely on rumors or speculations, it may constitute a breach of contract. Thirdly, after suspending performance, the party should promptly notify the other party. If the other party provides appropriate guarantees, the performance should be resumed. Fourthly, if the other party fails to restore its ability to perform the contract and provide guarantees for a long time, the contract may be terminated and compensation may be requested. Fifthly, it is recommended to preliminarily stipulate information disclosure, accelerated maturity, and guarantee clauses in the contract to actively manage transaction risks. For other difficult issues, please refer to the relevant provisions.Special servicesFor matters related to corporate law, you can refer to the following resources for further information:Intellectual property protection and corporate lawFor matters involving creditor's rights recovery and enforcement, you can refer to the following documents for reference:Creditor's rights and debts, and enforcement.

VI. Frequently Asked Questions

Q1: If the other party's business situation deteriorates, can I suspend my performance of the contract?

You can do so if the conditions are met. If the other party's business situation deteriorates seriously, transfers assets to evade debts, or loses business credibility, etc., and you are the party that should perform the contract first, you can suspend the performance if you have conclusive evidence. However, you should notify the other party in a timely manner.

Q2: Can we terminate the cooperation just because we've heard that the other party is facing financial difficulties?

The risk is relatively high. According to the law, there must be "concrete evidence", such as enforcement information, bankruptcy applications, and suspension of production announcements. If the performance is suspended solely based on rumors or speculations, the party may bear breach of contract liability due to the lack of evidence.

Q3: What should I do after suspending the performance of the contract?

The party concerned shall notify the other party in a timely manner and explain the reasons; if the other party provides appropriate guarantees, the party shall resume performance; if the other party fails to restore its performance capacity within a reasonable period of time and fails to provide guarantees, the party may further claim to terminate the contract.

Q4: Can the other party still refuse to perform the obligation after providing a guarantee?

Generally, it is not allowed. According to the provisions of the Civil Code, if the other party provides appropriate guarantees, the performance of the contract should be resumed; if the other party continues to refuse to perform the contract, it may be deemed a breach of contract. Therefore, it is necessary to evaluate whether the guarantees are appropriate before making a decision.

Q5: Can the suspension of performance directly terminate the contract?

It cannot be directly terminated. Suspending performance is a temporary measure. Only when the other party fails to restore its performance capacity within a reasonable timeframe and fails to provide appropriate guarantees, can the contract be terminated and the other party be requested to bear the liability for breach of contract.

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

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

Disclaimer: This article is compiled based on current 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. In the event of a dispute, please consult a practicing lawyer promptly.