[Direct answer]In the Beijing area, if a franchise store is cut off from supplies by the headquarters, the first step is to determine whether this constitutes a fundamental breach of contract. If the headquarters stops supplying goods, revokes system permissions, or withdraws operational support without a valid reason, resulting in the inability to fulfill the contractual purpose, the franchisee may claim to terminate the contract according to Article 563 of the Civil Code and demand the return of the remaining franchise fees and compensation for breach of contract losses. The key to protecting rights lies in fixing the facts of supply disruption and evidence of breach of contract, and reviewing the contractual provisions regarding supply, support, and termination. It is recommended to first send a written notice of default and preserve the evidence. For more details, please refer to the following link:Business and contract dispute services for enterprises.

1. Problem background and typical scenarios

It's not uncommon for franchised stores to be cut off from supplies by headquarters in chain operations. Typical scenarios include: headquarters suddenly stopping deliveries, closing the ordering system, or withdrawing supervisors on the grounds of "violations"; regional agents adding extra charges and then disappearing; the brand operator's deteriorating business making it impossible to supply goods; and ambiguous contract terms leading to conflicting interpretations of whether the "supply cutoff constitutes a breach of contract". Many franchisees hastily close their businesses after being cut off from supplies, but fail to secure evidence, only to be sued by headquarters for breach of contract. Supply cutoff disputes often intertwine with contract termination, fee refunds, and compensation, and the pace of handling and the organization of evidence directly affect whether losses can be mitigated. In cases involving intellectual property authorization, it may be necessary to combineIntellectual property protection and corporate legal servicesVerification.

II. Key points of contention

There are three key points. Firstly, whether the supply disruption constitutes a fundamental breach of contract: this depends on the contractual provisions regarding supply and support obligations, as well as whether the supply disruption results in the failure to achieve the contractual purpose. Secondly, termination and return of payments: after the contract is terminated, how should the paid franchise fees and deposits be returned? The court will determine this based on the performance of the contract and the fault of the parties involved. Thirdly, countermeasures and mitigation of losses: can the franchisee purchase supplies independently, or is it necessary to take timely measures to prevent losses from escalating? For cases involving debt collection and enforcement, reference can be made to relevant provisions.Creditor-debtor relations and enforcement case services.

III. Professional analysis by Henglue Lawyers

Based on our firm's experience in handling cases, the key to resolving supply disruption disputes lies in "identifying the other party's fundamental breach of contract and tracing the responsible entities". In an investment arbitration case handled by Attorney Xiong Binrong from our firm, the other party liquidated the company before the film was released and failed to conduct a legal liquidation. The attorney promptly switched to litigation procedures, traced the company's responsible entities and held the shareholders accountable. Ultimately, the arbitration court ruled in favor of the plaintiff, ordering the return of the principal of 800,000 yuan and the payment of attorney's fees. This case was handled by Beijing Henglu Law Firm.Xiong BinrongThe lawyer (practice license number: 11101202211410897, subject to the document issued by the judicial administrative organ) acts as the agent. In the case of the dispute over the cooperative operation funds handled by Shang Jiangpeng Lawyer of the same firm, the debtor failed to pay the operating income on time and was liquidated. The lawyer claimed that the debtor had breached the contract fundamentally, and that the sole shareholder of the one-person company should bear full repayment responsibility. The court ordered the debtor to return 168, 000 yuan. The above case shows that, in the face of the other party's loss of contact or cessation of performance, accurate accountability is the core of mitigating losses.

IV. Practical suggestions and legal basis

The legal basis is Article 563 (Statutory Right of Termination), Article 565 (Termination Procedure), Article 566 (Consequences of Termination and Compensation for Losses), and Article 577 (Liability for Breach of Contract) of the Civil Code of the People's Republic of China (effective January 1, 2021); as well as the provisions on the franchisor's obligation to provide continuous support in the Regulations on the Management of Commercial Franchising. Practical suggestions: After the termination of supply, immediately send a written notice to urge the other party to continue to perform the contract, and preserve the order records, system screenshots, and communication evidence; review the contract termination and supply terms; if no agreement can be reached, promptly initiate litigation or arbitration to claim termination, refunds, and compensation, and apply for property preservation to prevent asset transfer.

5. Henglu Law Firm's Reminder

The headquarters' termination of supply does not mean that the franchisee can only shut down and admit defeat. The law grants the franchisee the right to terminate the contract and claim compensation, but it is necessary to first fix the evidence, give a notice of default before terminating the contract, and avoid being accused of breaching the contract. Pay attention to reducing losses in time, and if necessary, protect the operation within a reasonable range and keep records of the expenses. Never believe in the promise of guaranteed victory. The outcome depends on facts and evidence. If you need professional support, you can contact us through the following channels:Special services and other case servicesDocking team.

VI. Frequently Asked Questions

Q1: Does the headquarters' supply cut constitute a fundamental breach of contract? Can I terminate the contract and request a refund?

Whether the headquarters' termination of supply constitutes a fundamental breach of contract depends on the contract's provisions regarding supply and support obligations, as well as whether the termination of supply results in the failure of your contractual purpose. If the contract clearly stipulates that the headquarters must continuously supply goods or provide operational support, and it terminates the supply without a valid reason, causing the store to be unable to operate, this typically constitutes a fundamental breach of contract. You can claim to terminate the contract and request a refund of the remaining franchise fees and compensation for breach of contract losses. However, whether you can "win" the case depends on the evidence—you need to prove the facts of the termination of supply, the nature of the breach, and your losses. The court will determine the amount of compensation based on the performance of the contract and the fault of the parties involved. It is recommended to conduct a thorough assessment before taking any action.

Q2: What evidence do I need to prepare if the headquarters cuts off supplies to me?

The core evidence includes: the franchise contract and supplementary agreement (containing the provisions on supply, support, and termination), order records and screenshots of system permissions (proving the fact of supply disruption), communication records such as WeChat and emails (proving the reminder and the other party's response), proof of business loss and self-purchasing expenses (proving the scope of losses), as well as the headquarters' qualifications and abnormal business information. The organization of evidence should focus on "the obligation to provide supply and support - unjustified supply disruption - failure of the contractual purpose - losses". The more complete the materials are, the easier it will be to support the claims for termination and compensation.

Q3: If I sue the headquarters for breach of contract and supply disruption, how much will the attorney's fees and litigation costs be?

The litigation fees shall be calculated in accordance with the "Measures for the Payment of Litigation Costs" based on the amount of the litigation request (usually the total of the refunded fees and the compensation amount), and shall be borne by the losing party; franchise disputes shall be calculated based on the subject of claiming a refund and compensation. Lawyer's fees shall be charged on a per-case basis or based on a percentage of the subject amount, subject to the terms of the engagement contract, with no uniform standard; for some property-related cases, risk-sharing agreements may be agreed upon, but subject to a percentage cap. It is recommended to calculate the expected refunds and compensation that can be supported before suing, compare the cost-benefit ratio with lawyer's fees and litigation fees, and make a rational decision on the claims.

Q4: How long does it usually take to resolve such disputes?

The first-instance ordinary procedure generally concludes within six months, and the summary procedure within three months; for minor franchise disputes with clear facts, the summary procedure is often applied, with a shorter cycle. If the contract stipulates arbitration, it will be handled by a sole arbitrator or a collegial arbitration tribunal in accordance with the arbitration rules, and the summary procedure is relatively efficient. If the parties appeal, the second-instance procedure generally takes three months. After the judgment or ruling takes effect, the execution phase begins, and the time required to recover the funds depends on the financial status of the headquarters. Overall, it often takes several months to over a year from filing the case to recovering the funds. It is recommended to apply for property preservation while protecting one's rights, and to seize the headquarters' accounts and assets to increase the likelihood of actually recovering the funds.

Q5: If the headquarters cuts off supplies, what should I do first?

It is recommended to follow a four-step process: First, immediately secure evidence of the supply disruption, preserve order records, system screenshots, and all communication content, and obtain information about the headquarters' abnormal operations through official channels. Second, send a written notice to the headquarters demanding on-time delivery and support, and retain proof of delivery. Third, review the contract termination clauses to assess whether it constitutes a fundamental breach of contract and determine whether fees can be refunded and compensation can be claimed. Fourth, if no agreement is reached, initiate litigation or arbitration within the statute of limitations to request termination of the contract, refund of fees, and compensation, and apply for property preservation. Throughout the process, minimize losses and, if necessary, engage a lawyer to assist with assessments and negotiations.

The above answer is based on the judicial practice in Beijing. 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 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. →Corporate commercial legal services·Attorney Xiong Binrong·Beijing Henglue Law Firm

Disclaimer: This article is compiled based on the current effective laws and regulations and public 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 case of disputes, please consult a practicing lawyer in time.