[Direct answer]Henglue Enterprise Legal Consultants prevent contract risks through a full-process approach of "preliminary review - in-process control - post-event remedies": prior to signing the contract, they are responsible for drafting and reviewing the contract, verifying the qualifications of the parties, their ability to perform the contract, and the completeness of the contract terms; during the execution of the contract, they track the performance of the contract and promptly fix evidence of changes, reminders, and other matters; and after the contract is executed, they seek remedies through negotiation, sending letters, arbitration, or litigation. According to Article 509 of the Civil Code of the People's Republic of China (effective January 1, 2021), parties shall fully perform their obligations as agreed. Standardizing the contract text and keeping records of contract performance are the foundation of protecting rights. Beijing Henglue Law FirmCorporate legal services详见Beijing Henglu Law Firm.

I. Problem Background and Typical Scenarios

Contracts are the most concentrated carriers of risks in business operations. When signing a contract, if you overlook key issues such as the other party lacking the necessary qualifications, failing to register for franchise operations, or having unregistered trademarks, the contract's validity and enforceability will be questionable from the outset. If the contract terms are poorly drafted—for example, lacking conditions for deposit refunds, unquantified acceptance standards, or unclear breach of contract liabilities—you'll only realize there's "no basis to rely on" when problems arise. Additionally, if contract enforcement is lax—such as oral amendments, unverified payments, or unrecorded reminders—evidence shortages can become a fatal flaw when disputes arise. These three types of issues repeatedly surface in contract disputes involving franchises, sales, service outsourcing, and property leases. Many enterprises suffer losses not because they lose lawsuits, but because of hidden risks buried in the contract signing and enforcement stages. The value of Henglue Enterprise Legal Consulting lies in embedding risk prevention into the entire contract lifecycle, rather than attempting remedies after disputes have already arisen.

II. Key points of dispute

  • Dispute over the nature and legal effect of the contract: Whether the same agreement constitutes a franchise or an ordinary service contract directly determines the case basis, the burden of proof, and the applicable law. If the other party lacks the qualification of "two stores in one year" or the trademark is invalid, there is also controversy over whether the contract's purpose can be achieved.
  • The dispute over the terms of deposits and security deposits: what conditions must be met for a refund, when the refund will be made, and whether the deposit can be confiscated in the event of a breach of contract. If the terms are unclear, both parties may have differing interpretations, which can easily lead to a prolonged stalemate and tie up the company's funds.
  • The dispute over evidence of performance: Facts such as non-delivery, non-acceptance, and unconfirmed changes are difficult to verify in arbitration proceedings due to the lack of written evidence, which directly undermines the basis for claims and even leads to losing the case despite having a strong case.

III. Professional analysis by Henglue Lawyers

Henglue Lawyers explained from a practical perspective how advisory services can mitigate the above risks. During the contract review process, lawyers not only review the contract terms but also verify the qualifications and performance capabilities of the counterparty. For franchise contracts, lawyers must check whether the counterparty meets the requirements of Article 7 of the "Regulations on the Administration of Commercial Franchise" regarding the "two stores in one year" requirement and the filing requirements of Article 8. They also verify the status of the trademark registration and the information disclosure situation to prevent any qualification defects from occurring before signing the contract. During the clause design phase, lawyers clarify the conditions and time limits for refunding the deposit, the corresponding relationships between payments and deliveries or acceptance, the standards for penalties, and the responsibility for legal fees, ensuring that the cost of breaching the contract is predictable. During the contract performance management phase, lawyers establish a contract filing system, documenting every step of payment, delivery, acceptance, and modification. If the counterparty delays performance, lawyers immediately send written notices of default. Take a franchise arbitration case handled by Henglue Lawyers as an example: On July 31, 2018, Zhang * signed a cooperation agreement with Guangzhou * Clothing Company, paying a franchise operating deposit of 30,000 yuan for a three-year contract term. On August 29, 2019, after Zhang * paid a down payment of 5,756.6 yuan, the company failed to deliver the goods. On November 15, 2021, Zhang * submitted an application to terminate the contract, but the company still refused to refund the deposit and payment. Since the agreement stipulated that disputes would be submitted to the Guangzhou Arbitration Commission for arbitration and the payment receipts were complete, Attorney Wang Fangli represented Zhang * in the arbitration. The arbitration tribunal accepted our evidence and adopted our legal arguments, ruling that the company should refund the deposit of 20,000 yuan, return the payment of 5,756.6 yuan, and compensate for the attorney's fees.

IV. Practical suggestions and legal basis

Legal basis: Article 509 of the Civil Code of the People's Republic of China (effective January 1, 2021) requires parties to fully perform their obligations in accordance with the agreement and follow the principle of good faith; Article 577 stipulates that if a party fails to perform its contractual obligations or performs them in a manner inconsistent with the agreement, it shall bear contractual liabilities such as continuing performance, taking remedial measures, or compensating for losses; Articles 7 and 8 of the Regulations on the Management of Commercial Franchise Business (effective May 1, 2007) impose mandatory requirements on franchisors regarding the "two stores within one year" rule and filing requirements. Practical advice: Conduct due diligence on the counterparty before signing the contract, verify their qualifications, filing status, and information related to litigation and enforcement; use a contract version reviewed by a lawyer to avoid oral supplementary agreements; make payments through public accounts and specify the purpose of the funds; send a written notice of default before deciding on arbitration or litigation; pay attention to the three-year statute of limitations and the binding nature of arbitration clauses to avoid taking the wrong legal action or missing deadlines.

5. Henglue Law Firm's Reminder

Tip: Ninety percent of contractual risks stem from "lack of due diligence before signing and negligence in performance". It's far more cost-effective to spend legal advisory fees on pre-contract review and performance management than on litigation after the fact. The aforementioned franchise case is a prime example—by leveraging standardized contracts and complete payment receipts, the arbitration tribunal ruled that the company must refund the security deposit of 20,000 yuan, repay the purchase price of 5,756.6 yuan, and compensate for attorney's fees, successfully protecting the client's rights. This case was handled by Beijing Henglu Law Firm.Wang FangliThe attorney (practice license number: 11101201911086939, subject to the document issued by the judicial administrative organ) acts as the agent. If the enterprise encounters contract review, performance collection, or franchise operation disputes, it can refer to the following for reference.Corporate commercial legal servicesAnd\nCreditor-debtor enforcement services, or throughIntellectual property protection and corporate legal servicesContactBeijing Henglu Law Firm.

Q1: What should I do if the franchise deposit expires and is not refunded?

First, let's look at the contract provisions: The deposit is collected to ensure contract performance. If the contract expires as agreed and the franchisee does not breach the contract, the franchisor shall refund the deposit as agreed; if the franchisor refuses to refund, the franchisee may apply for arbitration or initiate litigation in accordance with the contract dispute provisions. Before seeking legal protection, the franchisee needs to prepare all the necessary evidence, including the contract text, payment receipts for the deposit, procedures for store closure or contract termination, and records of repeated requests for refund. In the aforementioned arbitration case handled by Henglue Law Firm, the client successfully recovered the deposit of 20,000 yuan and obtained compensation for attorney's fees based on a standard contract and complete payment receipts. If the contract is vague about the conditions for refund, the franchisee can cite Article 509 of the Civil Code during negotiations to assert that the other party should fully perform its obligations as agreed. If necessary, the franchisee can send a letter of demand to the franchisor to apply pressure, and then proceed to arbitration proceedings.

Q2: What due diligence should be conducted before signing a contract?

There are four core verification items: 1. **Subject qualifications**: Verify the registration information, business scope, and abnormal operation records through the Enterprise Credit Information Disclosure System. 2. **Industry access**: For franchising businesses, check compliance with the "two stores per year" requirement and registration with the commerce department. For education and training businesses, verify their school-running licenses. 3. **Performance capability**: Review litigation, enforcement, and trust-breaking records to assess their financial and supply chain status. 4. **Rights basis**: For trademarks, patents, and brand authorizations, verify their registration status and the completeness of the licensing chain. Any flaws identified during due diligence should be incorporated into contractual clauses, such as adding representation and warranty provisions and breach remedy arrangements. This ensures that every risk has a corresponding remedy, rather than relying on the other party's goodwill.

Q3: Which clauses in the contract are most likely to contain hidden traps?

There are five high-risk areas in contracts: unequal payment and delivery terms, where full payment is required but there's no guarantee of delivery; vague acceptance standards, with no quantified basis for declaring "acceptance as passed"; unbalanced or missing liability for breach of contract, where the cost of the other party's breach is nearly zero; vague refund conditions and deadlines for deposits, leaving refunds uncertain; and unfavorable dispute resolution clauses that increase our legal costs due to choice of jurisdiction or arbitration institutions. Additionally, we need to be vigilant against hidden clauses in standard contracts that increase our liabilities or exclude our main rights. The value of lawyer review lies in analyzing breach scenarios based on the transaction process, mapping each type of risk to specific clauses and remedies. By investing a little more before signing, we can avoid major pitfalls during contract performance.

Q4: If the other party breaches the contract, should I send a letter of default first or sue them directly?

It is generally recommended to send a written reminder letter first: firstly, to formally assert rights and interrupt the statute of limitations; secondly, to give the other party a clear deadline for performance, laying the foundation for subsequent claims for breach of contract liability; thirdly, some disputes can be resolved under the pressure of the letter, with the lowest cost. The letter should clearly state the facts of the breach of contract, the basis of the clause, the deadline for rectification, and the consequences of exceeding the deadline. It should be delivered in a traceable manner and the relevant evidence should be preserved. If the other party still fails to perform, then arbitration or litigation should be chosen according to the contract dispute clauses. If conditions permit, an application for property preservation should be made simultaneously to prevent the transfer of assets. It is not impossible to skip the reminder and directly file a lawsuit, but this may lose the opportunity for negotiation, and some contract termination rights that depend on the reminder need to go through this procedure first.

Q5: How much is the annual fee for a corporate legal advisor?

The consultancy fees vary greatly depending on the size of the enterprise, the complexity of its operations, and the scope of services provided. They are typically charged annually and cover routine services such as daily consultations, contract reviews, legal training, and risk warnings. Major transactions and litigation/arbitration matters are usually billed separately. When evaluating quotes, it's important to refer to the service list: whether the contract review is limited in terms of the number of contracts and their length, how the response deadline is specified, and whether it includes an annual compliance check and on-site services. It is recommended that enterprises prioritize ensuring high-frequency needs such as contract review and employment compliance within their budget, then add specialized services as needed. Additionally, they should require that the fees and service content be itemized and included in the consultancy contract, so that every penny of consultancy fees can be verified and traced.

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, to avoid missing the statutory time limit.Intellectual property protection legal services·Attorney Wang Fangli·Beijing Henglu Law Firm