[Direct answer]In the Beijing area, the conclusion is that it is generally possible to claim termination of the contract, but this needs to be judged in light of the contractual provisions and the degree of breach of contract. According to the relevant provisions of the "Regulations on the Management of Commercial Franchising", the franchisee shall carry out business activities in accordance with the provisions of the franchise contract; if the contract explicitly stipulates unified procurement and prohibits private procurement, the franchisee's violation constitutes a breach of contract, and the headquarters can claim breach of contract liability according to the contract. According to Article 563 of the Civil Code of the People's Republic of China, if a party delays in performing its obligations or engages in other breaches of contract that prevent the achievement of the contractual purpose, the other party may terminate the contract. If the breach of contract is not sufficient to cause the failure of the contractual purpose, it is advisable to first urge the other party to make corrections and require rectification, and then properly fix the evidence of the breach of contract before deciding whether to terminate the contract, so as to avoid assuming breach of contract liability due to improper termination.

I. Problem background and typical scenarios

In franchising, the headquarters usually requires franchisees to purchase raw materials or supplies in a unified manner to ensure quality and brand image. However, some franchisees purchase materials privately to reduce costs, which often leads to disputes. Typical scenarios include: franchisees replacing designated materials with low-cost, non-differentiated ones; purchasing materials through their own channels to bypass the headquarters' supply system; unclear purchasing sources leading to uncontrolled quality; and the headquarters terminating the contract and claiming breach of contract damages, while the franchisees deny the allegations or claim that the headquarters breached the contract first. When adjudicating such cases, courts typically review the contractual provisions regarding procurement, the nature and consequences of the breach of contract, and whether the headquarters fulfilled its obligations to give notice and provide assistance.

II. Key points of dispute

Firstly, does the contract clearly stipulate unified procurement and the consequences of violating it? Secondly, does unauthorized procurement constitute a fundamental breach of contract or a general breach of contract? Thirdly, did the headquarters fulfill the requirements of giving notice and ordering rectification before terminating the contract? Fourthly, can the franchisee use the high supply price of the headquarters and the discontinuation of supplies as a defense? Fifthly, is the amount of the breach of contract penalty reasonable and can it be adjusted? Sixthly, how to provide evidence of brand damage and economic losses? Seventhly, how to handle the franchise fee, deposit, and inventory after the contract is terminated? These issues together determine whether the termination of the contract is valid and how to apportion the consequences.

III. Professional analysis by Henglue Law Firm

Based on Henglu Lawyer's practical experience in handling franchise and corporate contract disputes, such issues should focus on four key points. First, contractual priority: According to the "Regulations on the Management of Commercial Franchise", the franchisee shall comply with unified operating and procurement standards. If the contract explicitly prohibits unauthorized procurement, any violation constitutes a breach of contract. Second, defining the nature of the breach: It is necessary to distinguish between ordinary breaches and fundamental breaches. According to Article 563 of the "Civil Code of the People's Republic of China", termination is more appropriate only when the breach renders the contractual purpose unattainable; otherwise, the franchisor should first urge the franchisee to rectify the breach. Third, proper procedures: Before claiming termination, it is advisable to issue a written notice and grant a reasonable period for rectification, and to retain evidence of delivery and communication to avoid procedural defects affecting the effectiveness of termination. Fourth, responding to defenses: Franchisees often defend themselves by citing high supplier prices, supply disruptions, or inadequate services provided by the headquarters. It is necessary to review whether the headquarters has fulfilled its supply and support obligations. If the headquarters is also in breach, it may affect the allocation of responsibilities. Fifth, proving losses: Losses such as brand damage, customer loss, and declining sales must be supported by sales data, complaint records, and rectification costs. If the liquidated damages are too high or too low, adjustment may be requested. Sixth, post-termination handling: Termination involves franchise fees, security deposits, inventory, and store logos, etc. It is advisable to clarify all these issues in the litigation request.

IV. Practical suggestions and legal basis

Practical suggestions: First, sort out and keep the clauses in the franchise contract concerning procurement, breach of contract, and termination; Second, fix the evidence of franchisees' private procurement, such as purchase invoices, logistics information, and on-site materials; Third, give written notice of termination and a reasonable rectification period before termination, and keep the delivery records; Fourth, evaluate whether the breach of contract has reached the level of fundamental breach of contract, and choose to terminate the contract or require continued performance; Fifth, prepare corresponding evidence when claiming breach of contract penalties and losses, and apply for adjustment if necessary; Sixth, deal with after-sales matters such as franchise fees, deposits, and inventory in a timely manner after terminating the contract. For more details, please refer to the platform's services.Intellectual property protection and corporate law,Business and contract disputes in enterprises,Creditor's rights and debts, and enforcement、Special servicesAndCriminal defense and criminal case filingLegal basis: Articles 563, 577, and 584 of the Civil Code of the People's Republic of China (all of which came into effect on January 1, 2021), as well as the current provisions of the Regulations on the Management of Commercial Franchise Businesses (which came into effect on May 1, 2007). The specific application shall be subject to the currently effective laws, regulations, and judicial rulings.

5. Henglu Law Firm's Reminder

First, if a franchisee violates the unified procurement agreement, it constitutes a breach of contract, but whether the contract can be terminated depends on the degree of the breach. Second, if the contract clearly stipulates the procurement and termination clauses, the claim will have a stronger basis. Third, before claiming termination, it is advisable to issue a written notice and grant a reasonable rectification period to avoid procedural defects. Fourth, if the franchisee defends against the claim by arguing that the supply price is too high or that the supply has been discontinued, it is necessary to review whether the headquarters has also breached the contract. Fifth, the losses and the breach of contract penalties should be supported by data and evidence, and if they are too high or too low, adjustments can be requested. Sixth, after terminating the contract, matters such as the franchise fee, the deposit, and the inventory should be dealt with simultaneously. Seventh, franchising disputes are highly specialized, and it is recommended to consult a professional lawyer as soon as possible.

VI. Frequently Asked Questions

Q1: If a franchisee purchases products privately, can the headquarters directly terminate the contract with them?

It may not be possible to terminate the contract directly. It depends on the contractual provisions and the degree of breach of contract. According to Article 563 of the Civil Code of the People's Republic of China, the contract can only be terminated if the breach of contract results in the failure to achieve the purpose of the contract. If it is a general breach of contract, it is recommended to first send a written notice to the other party to rectify the breach, keep the evidence, and then decide whether to terminate the contract, so as to avoid being held liable for the consequences of improper termination of the contract.

Q2: The contract doesn't mention prohibiting private mining. Can we still terminate the contract?

This is quite challenging. If the contract does not explicitly stipulate the obligation of unified procurement and the consequences of breaching it, the headquarters will lack a direct basis for claiming termination of the contract. It is necessary to prove that the unauthorized procurement has damaged the brand or led to the failure of the contractual purpose. It is recommended to use evidence such as brand quality and consumer complaints to demonstrate the fundamental breach of contract, or to require the other party to bear corresponding breach of contract liability.

Q3: Can I claim the breach of contract penalty in the event of terminating the contract?

Claims can be made in accordance with the contract. If the contract stipulates a penalty, the claim shall be made in accordance with the contract; if no penalty is stipulated, the claimant may claim compensation for actual losses. If the penalty is obviously higher than the losses, the other party may request an adjustment. When making a claim, the claimant should prepare evidence such as damage to the brand, a drop in sales, and the cost of rectification, so that the amount has a factual basis.

Q4: The franchisee says that the supplies provided by the headquarters are too expensive. Can they argue against this?

This may affect the sharing of responsibilities. If the supply price from the headquarters is obviously unreasonable or there are breaches of contract such as supply interruption or inadequate services, the franchisee's defense may be partially accepted, thereby reducing their liability for breach of contract. It is necessary to review the supply price, supply stability, and the actual performance of the headquarters' support obligations.

Q5: How will the franchise fee and deposit be handled after the contract termination?

Handle in accordance with the agreement and the reasons for termination. If the termination is due to the franchisee's breach of contract, the headquarters may, in accordance with the agreement, not refund some fees and claim damages; if the termination is due to the headquarters' breach of contract or for reasons not attributable to the franchisee, the relevant fees shall be refunded. It is recommended to clarify this in the litigation request to avoid secondary disputes.

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 cases.

If you are currently facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the relevant evidence materials, so as to avoid missing the statutory time limits. →Intellectual property protection 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. If you encounter disputes, please consult a practicing lawyer in time.