[Direct answer]In the Beijing area, contract risk prevention and control should cover four aspects: pre-contract review, clause design, evidence preservation during performance, and dispute response. Before signing the contract, verify the other party's subject qualifications and performance capabilities in accordance with Article 509 of the Civil Code, and incorporate the subject matter, quantity, quality, price, performance period, and breach of contract liability into the contract in accordance with Article 470. During performance, preserve evidence of delivery and communication in accordance with the principles of full performance and good faith. If a party breaches the contract, it may claim compensation for losses or breach of contract penalties in accordance with Articles 583 and 585. If the contract is invalid due to violating public order and good customs or contravening mandatory provisions of law (Article 152 of the Civil Code), it should be promptly confirmed as invalid and recover the property. By systematically carrying out the above actions, transaction risks can be significantly reduced. For more details, please refer to the following link:Legal services for corporate commercial and contract disputes.

I. Problem Background and Typical Scenarios

A large number of disputes in corporate operations stem from uncontrolled pre-contractual issues: signing contracts without verifying the other party's business license and performance qualifications, leading to the other party's lack of actual performance capabilities; vague contract terms with unclear provisions on quality standards, acceptance points, and payment conditions, resulting in conflicting interpretations during disputes; failure to retain delivery notes, acceptance certificates, and correspondence during the performance process, making it difficult to provide evidence in litigation; and signing agreements that legally conceal illegal purposes or violate public order and good customs to take shortcuts, which ultimately lead to their being deemed invalid. Such risks are common in various transactions such as sales, services, cooperation, and investment, and often only become apparent when disputes erupt. Related accounts receivable and enforcement issues can be addressed in conjunction with these issues.Creditor-debtor relations and enforcement case servicesLooking at it as a whole.

II. Key points of contention

  • Missing provisions and differences in interpretation: Where the parties fail to agree on quality standards, acceptance methods, or payment milestones, the provisions shall be determined in accordance with Article 501 and Article 502 of the Civil Code based on the relevant contract terms or trade practices. However, there is a large scope for evidence and discretion, which is prone to disputes.
  • The relationship between the penalty and the actual loss: If the agreed penalty is lower or excessively higher than the loss, the party may request the court or the arbitration institution to adjust it in accordance with Article 85 of the Civil Code. The party claiming the penalty must provide evidence of the loss.
  • Contract effectiveness risk: Agreements concluded with false intentions, in violation of policies or against public order and good customs are invalid from the outset according to Article 153. The property already paid must be returned. This is commonly seen in various drawer agreements and illegal arrangements.

III. Professional analysis by Henglue Law Firm

A contract validity case handled by Henglue Lawyers is quite instructive: The parties, in order to achieve a certain registration purpose, signed an agreement based on a false identity relationship with the counterparty and paid the agreed amount. However, due to policy changes that rendered the purpose futile, a dispute arose between the two parties over the return of the payment. After the lawyer team took over the case, they systematically collected the agreement text, transfer records, and communication recordings to demonstrate that the agreement evaded public policy and violated public order and good customs by means of a false expression of intent. Based on Articles 153, 157 of the Civil Code, they claimed that the agreement was invalid from the outset and that the counterparty should return the property obtained under the agreement. The court adopted the above opinion, confirming the invalidity of the agreement and ordering the recipient to return all the agreed payments. This case reminds us that any arrangement attempting to exploit systemic loopholes will ultimately lead to double risks of property and reputation due to validity defects. For investment cooperation, you can refer to it for reference.Financial capital and cross-border services involving foreign affairsThe approach to compliance review.

IV. Practical suggestions and legal basis

At the legal basis level, Article 470 of the Civil Code (effective January 1, 2021) lists general contract terms, and it is recommended to draft and review the checklist based on it; Article 509 establishes the principles of full performance and good faith, which are the basis of the obligation to leave a record of performance; Article 585 regulates the penalty for breach of contract, requiring the agreement to be specific and able to prove the losses; Articles 153, 157 constitute the rules on defects in effectiveness and return; the "Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the General Provisions of the Contract Chapter of the Civil Code of the People's Republic of China" (effective December 5, 2023) refines the standards for supplementing clauses, determining effectiveness, and adjusting the penalty for breach of contract. At the practical recommendation level: establish a hierarchical approval and standard template for contracts, and major contracts should be reviewed by legal affairs or lawyers; implement a closed-loop process of delivery, acceptance, and reconciliation during performance and document it in writing; regularly screen the creditworthiness of trading partners; immediately send a letter to stop losses and preserve evidence upon discovering a breach of contract. Related text reviews can be assisted byCorporate Legal Services.

5. Henglu Law Firm's Reminder

The cost-effectiveness of contract risk prevention and control is far higher than that of litigation after the fact: by conducting reviews, clauses, and evidence preservation in advance, most disputes can be prevented and resolved. In cases where the contract has already been found to be invalid or the other party has gone missing, enterprises should immediately fix the agreement and payment evidence, evaluate the paths of invalidation refund or breach of contract compensation, and, if necessary, apply for property preservation to lock in assets. Enterprises can standardize high-frequency contracts and set review points for scenarios such as cooperation, investment, and sales. Henglue Law Firm has accumulated extensive experience in contract disputes and can provide full-process support for transaction structure design and dispute resolution. For special transactions, clients are also welcome to pay attention to our services.Special services and other case services.

This case is handled by Beijing Henglu Law Firm.Xue SuhuaThe attorney (practice license number: 11101201211769926, subject to the document issued by the judicial administrative organ) acts as the agent.

VI. Frequently Asked Questions

Q1: What information should a company verify about its counterparty before signing a contract?

Before signing a contract, four types of information should be verified: First, the subject's qualifications. Check the name, unified social credit code, legal representative, and existence status through the National Enterprise Credit Information Publicity System to prevent signing contracts with entities that have been deregistered or fictitious entities. Second, qualifications and licenses. For fields such as franchising, construction projects, and financial services, the corresponding qualification certificates must be verified. Third, contractual performance and creditworthiness. Understand the actual paid-in registered capital, judicial litigation, and being listed as a dishonest person to determine their actual ability to perform the contract. Fourth, signing authority. Confirm whether the person signing the contract is authorized and whether the contract stamp is authentic. For major transactions, it is also possible to require guarantees or advance payment guarantees to reduce the risk of breach of contract at the source.

Q2: If there's no penalty clause in the contract, can I not claim compensation if the other party breaches the contract?

That's not the case. The absence of a penalty clause doesn't mean that there's no possibility of claiming compensation. The party in compliance can still claim compensation from the party in breach of contract for the losses caused by the breach of contract in accordance with Articles 583 and 584 of the Civil Code, including the benefits that could have been obtained after the performance of the contract, but the compensation shall not exceed the losses that the party in breach of contract foresaw or should have foreseen at the time of concluding the contract. Common items that can be claimed include interest losses on overdue payments, the price difference of substitute transactions, reasonable collection fees and expenses for protecting rights. When claiming compensation, evidence should be organized around the actual occurrence of the losses, the amount, and the causality of the breach of contract, such as market quotes, proof of capital costs, etc. The court will determine the compensation amount based on the foreseeable rules and the obligation of mitigation of damages.

Q3: If the other party signs a contract with fake qualifications, can the contract be declared invalid and the money recovered afterwards?

Whether it can be determined as invalid depends on whether the false qualifications affect the basis of the contract's validity. If the other party forges qualifications to make the other party sign the contract against their true intention, they can request to revoke the contract on the grounds of fraud according to Article 148 of the Civil Code. After the contract is revoked, the parties shall return the property to each other according to Article 157, and the party at fault shall compensate for the losses. If the falsification of qualifications also violates mandatory legal provisions or goes against public order and good customs, it can also be claimed as invalid. The key to recovering the funds lies in fixing the evidence of fraud: authenticating the authenticity of the qualification certificates, communication records showing that the other party knew there were no qualifications but still signed the contract, and payment receipts, etc. It should be noted that the right of revocation is subject to the statute of limitations. After discovering the fraud, it is necessary to assert the right as soon as possible to avoid the statute of limitations and the risk of evidence collection.

Q4: What evidence should be preserved during the performance of the contract to better protect one's rights and interests?

The following five types of evidence should be systematically preserved: 1. **Subject-related evidence**: The other party's business license, authorization letter, and contact information. 2. **Subject-related evidence**: The original contract, attachments, technical agreements, and orders. 3. **Performance-related evidence**: Delivery notes, acceptance certificates, service confirmation emails, and receipts of interim deliverables, which prove the other party's acceptance of the performance. 4. **Communication-related evidence**: WeChat messages, emails, meeting minutes, formalized collection notices, and statements of changes or breaches of contract. 5. **Financial-related evidence**: Invoices, bank statements, and reconciliation reports, which form a closed loop for verifying the amounts of receivables and payables. Evidence should be preserved in written or fixed formats whenever possible. For key milestones, require the other party to stamp or have designated personnel sign the documents to avoid oral agreements alone. When disputes first arise, stop further investments and fully export all communication records to prevent data loss.

Q5: If you find that the contract might be invalid or the other party has gone missing, what should you do immediately?

It is recommended to take three steps: First, immediately consolidate the evidence, export and save the contracts, transfer records, chat records, and performance materials to prevent the other party from deleting or losing contact, making it difficult to obtain evidence; Second, evaluate the effectiveness and return path. If the contract is suspected of violating public order and good customs or mandatory provisions, promptly claim invalidation and return of property in accordance with Articles 153, 157 of the Civil Code. Note not to continue to perform the contract and expand losses; Third, simultaneously investigate the other party's property clues, apply for pre-litigation or litigation preservation of bank accounts, real estate, equity, etc. to avoid having no property available for enforcement after winning the lawsuit. The other party's loss of contact does not affect the lawsuit, and the court can serve the documents by public announcement, but the more comprehensive the initial property clues are, the greater the chance of recovering the money.

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 courts may vary, which may affect the conclusions. Welcome to consult Henglu Law Firm for specific situations.

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 limit.Business and commercial legal services·Attorney Xue Suhua·Beijing Henglu Law Firm