[Direct answer]In the Beijing area, when a buyer breaches the contract, it's not a simple choice between continuing to perform the contract and claiming breach-of-contract penalties, but rather it depends on whether the contractual purpose can be achieved and whether the losses need to be compensated. According to Article 577 of the Civil Code, the breaching party shall bear responsibilities such as continuing to perform the contract, taking remedial measures, or compensating for losses; for monetary debts or non-monetary debts that are not suitable for compulsory performance, the other party may request continued performance, except in the circumstances specified in Article 580. Breach-of-contract penalties, as claimed in Article 585, should primarily compensate for actual losses and secondarily serve as a moderate punishment. Generally, if the contract can still be performed and the subject matter still has value, it's more advantageous to claim continued performance; if the subject matter loses its significance or the cost of performance is too high, it's more beneficial to claim breach-of-contract penalties or compensation for losses. For more details, please refer to the relevant provisions of the Civil Code.Legal services for corporate commercial and contract disputes.

I. Problem Background and Typical Scenarios

In second-hand housing transactions, commodity sales, and customized transactions, it's a common problem for sellers that buyers want to back out after signing the contract due to market fluctuations or funding shortages. Typical scenarios include: buyers refusing to pay the balance on the grounds that they don't want to buy anymore, and sellers being torn between forcing them to transfer ownership or accepting the breach of contract penalty; contracts stipulating continued performance, but the house has already been disposed of by the buyer or the subject matter is no longer deliverable; sellers claiming to continue performing the contract while demanding full breach of contract penalties, only to be reminded that the two may overlap; buyers going missing, leaving sellers worried about long litigation periods and slow recoveries of payments. Choosing the wrong approach not only affects the speed of recovering payments, but also may lead to adjustments due to repeated claims. Such breach of contract remedies can be combined with other legal means to achieve better results.Creditor-debtor relations and enforcement case servicesCollaborative design.

II. Key points of dispute

  • The continued performance of the obligation: According to Article 580, if the performance of the obligation is legally or factually impossible, if the subject matter of the obligation is not suitable for compulsory performance, or if the cost of performance is too high, the people's court or arbitration institution may terminate the rights and obligations relationship, but this shall not affect the performance of the breach of contract liability.
  • The relationship between the penalty and the continued performance of the contract: The two have different functions. The continued performance aims to achieve the contractual purpose, while the penalty aims to compensate for the losses. It is not appropriate to claim a portion exceeding the actual losses for the same breach of contract twice.
  • Adjustment of the amount of the penalty: If the agreed penalty is excessively higher or lower than the actual losses, the party may request an adjustment in accordance with Article 85 of the Civil Code, and must provide evidence of the actual losses.

III. Professional analysis by Henglue Law Firm

A contract breach arbitration case handled by Henglue Lawyers is instructive: After the client completed the contractual obligations and passed the acceptance inspection by the counterparty as agreed, the counterparty delayed paying the remaining funds. The client initiated arbitration, claiming payment of the contractual amount, default penalties for late payment, and reasonable expenses for safeguarding rights. The attorney organized evidence based on the contract terms and the acceptance inspection records, demonstrating that the payment conditions had been met and the liability for late payment was clear. The arbitration tribunal supported the return of the contractual amount and compensation for reasonable legal fees, but adjusted the default penalties for late payment based on the actual losses. This case shows that the core of breach of contract remedies lies in the chain of evidence and the verifiability of losses. Whether to opt for continued performance or default penalties ultimately depends on whether the contract can be performed and how the losses can be proven. For transactions involving review of the transaction structure, this case can be referenced.Corporate legal services.

IV. Practical suggestions and legal basis

At the legal basis level, Article 577 of the Civil Code (effective January 1, 2021) specifies the forms of breach of contract liability; Article 579 clarifies that monetary debts can be requested for continued performance; Article 580 defines the exceptions to the continued performance of non-monetary debts; Articles 584 and 585 regulate the scope of loss compensation and breach of contract penalties; Articles 563 and 566 establish statutory rescission and the consequences of rescission. At the practical advice level: When signing a contract, distinguish between the breach of contract penalties for late performance and those for rescission to avoid clause overlap and adjustment; Send a letter to fix the facts of the buyer's breach of contract and assess their solvency as soon as the breach first occurs; Decide to continue performance and apply for preservation of the buyer's property at the same time; Decide to rescind the contract and calculate the price difference and expenses as soon as possible and file a lawsuit; Organize the evidence around three aspects: the contract, communication, and losses. For cross-border or complex transactions, breach of contract clauses can be assisted by legal professionals.Financial capital and cross-border services involving foreign countries.

5. Henglue Law Firm's Advice

Continuing to exercise the option of penalty clauses essentially involves weighing the contractual objectives against the need to compensate for losses. There is no absolute superiority or inferiority, only whether it is suitable for the specific case. A rational approach is to first assess the current status of the subject matter, the buyer's repayment ability, and the strength of the evidence, and then decide whether to force performance or seek compensation. Regardless of the path chosen, it is essential to send a letter early to formalize the breach of contract and simultaneously secure the assets. Henglue Lawyers can assist in designing request combinations and evidence-gathering plans in contract breach remedies, thereby improving the efficiency of recovering payments. For complex transaction arrangements, we can also provide attention and support.Special services and other case services.

This case is handled by Beijing Henglu Law Firm.Xiong BinrongThe lawyer (practice certificate number: 11101202211410897, subject to the certificate issued by the judicial administrative organ) acts as the agent.

VI. Frequently Asked Questions

Q1: If the buyer breaches the contract, should I demand that they fulfill their obligations or just request the breach penalty?

It depends on whether the contract can still be performed and whether it's worth performing. If the subject matter still exists, the buyer has the ability to perform, and it's more beneficial for you to continue performing (for example, the house price has risen, and the goods can still be resold for a profit), you can request continued performance in accordance with Articles 579 and 580 of the Civil Code and claim breach of contract damages for late payment; if the buyer clearly does not want to perform, there is no possibility of delivering the subject matter, or the cost of continuing to perform is too high, then it's more practical to choose to terminate the contract, request the return of the property and compensation for losses in accordance with Article 566, or use the breach of contract damages to make up for the price difference. When making a decision, you should compare the benefits that can be obtained from continued performance with the breach of contract damages and the loss of price difference after termination, and evaluate the buyer's repayment ability and the possibility of enforcement. There's no need to mechanically adhere to a single approach.

Q2: If the party simultaneously claims to continue performing the contract and pay the breach of contract penalty, will the court support this?

Partially supported. Continuing performance and penalty clauses serve different remedial purposes, but for the same breach of contract, if continuing performance can achieve the contractual purpose, claiming the full amount of the penalty may be regarded as duplicating the compensation for losses. In practice, when the contract-abiding party requests continued performance, it can also claim the penalty for the delay in performance (such as interest on overdue payments and penalty for delayed delivery of the house), which does not conflict with continued performance. However, if the penalty claimed is a termination-type penalty or compensation that clearly exceeds the actual losses, the court will adjust it based on the performance of the contract to avoid the contract-abiding party gaining double benefits from the same breach of contract. Therefore, when suing, it is necessary to distinguish the nature of the penalty, listing the penalty for delayed performance and continued performance separately, and listing the compensation for termination and the termination separately, which is more logical and easier to gain support.

Q3: What should I do if the agreed penalty for breach of contract is too low and insufficient to compensate for the losses?

The amount of the agreed-upon penalty can be increased. According to Article 85, Paragraph 2 of the Civil Code, if the agreed-upon penalty is lower than the actual losses caused, the people's court or arbitration institution may increase it upon the request of the party concerned. When doing so, the party in compliance with the contract should provide sufficient evidence of the actual losses, such as the price difference of the alternative transaction, the interest on the occupied funds, the expenses of alternative disposal, and the loss of expected benefits, and explain why the agreed-upon penalty is insufficient to cover the losses. The increased penalty shall be based on the actual losses and take into account the performance of the contract and the fault of the parties. If there is no possibility of continuing to perform the contract, the party may directly claim compensation for the loss of performance interests in accordance with Article 85, and it is not necessary to be bound by the penalty clause. The key is to provide solid proof of the amount of losses and the causality of the breach of contract.

Q4: If the other party clearly states that they don't want to buy it anymore, can I directly terminate the contract?

It's possible, but it should follow standard procedures. If the buyer explicitly states or demonstrates by actions that they will not fulfill their main obligations, this constitutes an anticipated breach of contract according to Article 563 of the Civil Code. The party in compliance can notify the other party to terminate the contract or directly sue to request termination of the contract without notice. After termination, the parties should return the property to each other in accordance with Article 566 and request compensation for losses, including the benefits that could have been obtained after the contract was performed, or use the breach of contract penalty to make up for the losses. Note that the exercise of the right to terminate the contract has time limits and procedural requirements. It is recommended to clarify the intention to terminate the contract in a written letter and deliver it to the other party to avoid disputes over the effectiveness of the termination caused by oral statements. At the same time, it is necessary to fix the evidence of the other party's non-purchase (such as WeChat messages, letters, and records of payment suspension) to lay a foundation for subsequent claims and breach of contract penalties.

Q5: What evidence do I need to prepare for a lawsuit regarding continued performance or breach of contract?

Three types of evidence should be prepared: 1. **Contract and clauses**: Buy-sell contracts, supplementary agreements, breach-of-contract clauses, and payment milestones, to prove the parties' rights and obligations and the agreed-upon penalties. 2. **Breach and notice**: WeChat messages from the buyer refusing payment or stating they won't purchase, written notices, and delivery receipts, to establish the facts of the breach and your assertion of rights. 3. **Losses and subject matter**: The current condition of the subject matter, market price differences, calculation of interest on funds held up, and proof of alternative transactions, to support the amount of penalties or compensation. If claiming continued performance, you must also prove that the subject matter can still be delivered and that the buyer has the ability to perform. If claiming termination and compensation, you must demonstrate that the contract's purpose has failed. The more complete the evidence chain, the higher the likelihood of obtaining support for continued performance or penalties, and the greater the protection during enforcement.

This article is written based on the common judicial interpretation in the Beijing area. If the case occurs in other regions, it is recommended to consult local lawyers to verify the regional differences.

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 limit. →Business and commercial legal services·Attorney Xiong Binrong·Beijing Henglue Law Firm