[Direct answer]If a party to a corporate contract breaches the contract, the party in compliance with the contract may, in accordance with Article 577 of the Civil Code, require the other party to continue to perform the contract, take remedial measures, or compensate for the losses. If there is an agreement on the penalty for breach of contract, the party in compliance with the contract may claim it in accordance with Article 585; if no agreement is reached through consultation, the party in compliance with the contract may apply for arbitration or sue the other party in court in accordance with the contract dispute provisions, and fix the evidence such as the contract, the acceptance of the goods, and the reminder before seeking accountability.

I. Problem Background and Typical Scenarios

High incidence of contract breaches in enterprises occurs in scenarios such as payments for outsourced creative and technical development, overdue payments, disputes over delivery quality, and reneging on contractual agreements. Typical dilemmas include: the other party refusing to pay after the work is completed, or counter-accusing the other party of breaching the contract on the grounds of "non-compliance with quality standards" or "delivery delay". At this time, it is crucial not to stop at verbal reminders. Instead, one should first review the contract terms and performance records to determine whether the party has fully performed its obligations, and whether the other party's breach of contract constitutes delayed performance, defective performance, or refusal to perform. Then, a combination of remedies such as giving notice, terminating the contract, and seeking compensation should be selected.

II. Key points of contention

  • How to determine a breach of contract: Whether the work or goods have passed the acceptance test, who is responsible for the delay in delivery, and whether the other party can refuse to pay all the fees on the grounds of "non-compliance with quality standards".
  • How to quantify liability: How to calculate the contractual payment and the default penalty, the actual loss and the potential profit, and whether the court or the arbitration tribunal will reduce the default penalty if it is obviously too high.
  • How to choose a path: to continue to perform the contract, to terminate the contract, or to claim damages and terminate the contract; to resolve disputes through arbitration or litigation, each of which has its own costs and differences in enforcement.

III. Professional analysis by Henglue Law Firm

A case of arbitration of a commissioned creation contract handled by Henglue Law Firm is quite representative: In May 2022, Shanghai A Technology Company signed a "Project Outsourcing Agreement" with Shenzhen B Network Company, agreeing to create virtual IP materials for upgrading, with a fee of 583,000 yuan, and starting work after a 50% advance payment. In July of the same year, the work was finalized and passed the acceptance, but the other party defaulted on the remaining 50% payment and argued that the delay in delivery and the failure to meet quality standards constituted a fundamental breach of contract.Xiong BinrongAfter reviewing the contract terms and WeChat and email records, the lawyer pointed out that: before signing the script, the client had confirmed all requirements as requested by the other party, and all stages of the project were advanced after the other party's gradual confirmation. The delay was caused by the other party's multiple amendments, which had been agreed to; the other party's employees took the initiative to finalize the version, accepted the work first and then checked the invoice, promised to pay the full amount and requested to mail the invoice for the balance. The WeChat and email confirmations also met the written acceptance conditions. The arbitration tribunal adopted the main opinion, ruling that the client should pay 583,000 yuan in contractual compensation, only adjusting the amount of the breach of contract penalty, and compensating for all legal fees. The arbitration fees were also largely borne by the other party. This case shows that the success or failure of accountability depends on the design of contract terms and a closed-loop of performance evidence, rather than emotional accusations.

IV. Practical Suggestions and Legal Basis

In terms of legal basis, Article 577 of the Civil Code establishes the basic mode of assuming liability for breach of contract, Article 584 clarifies that the amount of compensation for losses includes the benefits that could be obtained after the performance of the contract, and is limited to the scope that the breaching party could foresee when entering into the contract. Article 585 stipulates the rules for adjusting the agreed penalty for breach of contract and setting it too high or too low, and Article 563 grants the statutory right of rescission. Operationally, it is recommended to: send a written reminder letter to the other party and keep the proof of delivery; when claiming compensation, list the principal, the penalty for breach of contract, and the costs of protecting rights; when choosing a procedure, check the arbitration clauses in the contract - valid arbitration clauses will exclude the jurisdiction of the court; pay attention to the three-year statute of limitations in Article 188 of the Civil Code, which starts from the date when the right holder knows or should know that his rights have been infringed. If the other party refuses to perform the effective judgment, you can apply for enforcement. For related creditor-debtor issues, you can refer to the relevant provisions.Creditor's rights and debts, and enforcementService.

5. Henglu Law Firm's Advice

When a company undertakes outsourcing, procurement, service, and other projects, it is essential to sign a written contract that specifies the acceptance standards and procedures, the handling of fees and schedules for modification and incremental work, payment milestones, penalties and liability for legal fees, and arbitration or litigation jurisdiction. All confirmations during the performance of the contract should be documented. This case is handled byXiong BinrongThe attorney (practice license number: 11101202211410897, subject to the document issued by the judicial administrative organ) is acting on behalf of the client. If you need contract review and dispute response solutions, please feel free to consult usBusiness and contract disputes in enterprisesService or accessBeijing Henglu Law Firm.

Q1: If the other party breaches the contract, should we first negotiate with them or directly file a lawsuit?

It is recommended to send a written reminder first: this not only gives the other party a chance to rectify the situation, but also turns the reminder letter into evidence of the fixed breach of contract and the interruption of the statute of limitations. During the negotiation, if the other party verbally promises to make payments or provide compensation, it should be formalized in a written agreement, specifying the amount, deadline, and guarantee method; if the other party procrastinates or refuses explicitly, then initiate arbitration or litigation according to the contract dispute clauses. Throughout the process, keep the original contract, acceptance records, account reconciliation vouchers, and communication records such as WeChat and emails. At that time, you can claim the principal, liquidated damages, and legal defense fees together. Negotiation and litigation are mutually reinforcing. Blindly delaying the process will only result in missing the opportunity to control the assets.

Q2: If the penalty for breach of contract is set too high, will the court award it in full according to the agreement?

It won't be entirely in accordance with the agreement. According to Article 585 of the Civil Code, if the agreed penalty for breach of contract is excessively higher than the losses caused, the parties may request the people's court or arbitration institution to reduce it appropriately; in judicial practice, it is generally based on the actual losses, taking into account the performance of the contract, the degree of fault of the parties and the expected benefits. The part exceeding 30% of the losses may be subject to reduction. Conversely, if the agreed penalty for breach of contract is lower than the losses caused, the party in breach of contract may also request an increase. Therefore, when claiming the penalty for breach of contract, the party should prepare evidence of the losses at the same time. When the other party contends that the penalty is too high, he/she also has the corresponding burden of proof.

Q3: If there's no penalty clause in the contract, can I still claim compensation?

Yes. The penalty clause is not a prerequisite for claiming compensation. According to Articles 577 and 584 of the Civil Code, if the other party's breach of contract causes losses, the party in compliance may claim compensation for the actual losses and the benefits that could have been obtained after the contract is performed, but the amount shall not exceed the scope of losses that the breaching party foresaw or should have foreseen at the time of concluding the contract. Enterprises should pay attention to preserving the calculation basis such as order profits, the price difference of substitute transactions, losses from work stoppages and layoffs, and the price difference of resale; the parts lacking evidence or reported unreasonably high are usually difficult to gain support, and the claim list must correspond to the evidence item by item.

Q4: If the contract stipulates arbitration, can I still sue in court?

Generally, this is not possible. A valid arbitration clause excludes court jurisdiction. If one party still files a lawsuit and the other party raises an objection before the first court hearing, the court will dismiss the lawsuit; except in cases where the arbitration clause is invalid, ineffective, or unclear and no supplementary agreement can be reached. The two approaches each have their own characteristics: arbitration is final, the procedure is relatively quick, and confidentiality is strong. In commercial arbitration, according to the agreement, attorneys' fees may also be compensated; while litigation has two-instance relief and can be appealed. Enterprises should weigh efficiency against relief costs when signing contracts, and once a choice is made, they should follow the agreed-upon approach.

Q5: Is there a time limit for pursuing breach of contract liability?

Yes. According to Article 188 of the Civil Code, the statute of limitations for bringing a lawsuit to protect civil rights before the people's court is three years, calculated from the date when the right holder knows or should have known that the rights have been infringed and the date when the obligee knows or should have known that the rights have been infringed. If the statute of limitations is interrupted and restarted during the period of limitation, such as when the right holder issues a reminder, the other party agrees to perform the obligation, initiates arbitration or files a lawsuit, the statute of limitations will be interrupted and restarted. In practice, many enterprises fail to assert their rights for many years, and the other party's statute of limitations defense makes the creditor's claims difficult to enforce as natural debts. For accounts receivable with a long aging period, regular written reminders should be issued and the relevant evidence should be preserved.

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