[Direct answer]In the Beijing area, in principle, the right to rescind the contract belongs to the party that fulfills the contract, and the defaulting party cannot actively rescind the contract on the grounds of its own breach of contract; but when the contract has reached an impasse, continued performance would be unfair to the defaulting party, and the party that fulfills the contract refuses to rescind the contract, judicial practice allows the defaulting party to request termination of the contract relationship through litigation. According to Article 50(2) of the Civil Code of the People's Republic of China (effective January 1, 2021), if the subject matter of the debt is not suitable for forced performance or the cost of performance is too high, etc., resulting in the failure to achieve the purpose of the contract, the people's court may, upon the request of the parties, terminate the rights and obligations relationship of the contract, but this does not affect the assumption of liability for breach of contract; Article 48 of the "Memorandum on Civil and Commercial Trial Work of the National Court" (issued on November 8, 2019) specifies the conditions for the defaulting party to sue for rescission of the contract.

1. Problem background and typical scenarios

Contractual deadlocks often occur in transactions with long performance cycles and difficult recoveries of investments: the lessee is unable to continue leasing while the lessor insists on collecting the rent; the contractor is unable to continue construction due to out-of-control costs, but the employer does not agree to terminate the contract; the buyer's capital chain breaks down and is unable to make payments, but the seller refuses to terminate the contract. Regarding whether to allow the breaching party to request termination, Article 580 Paragraph 2 of the Civil Code of the People's Republic of China and the aforementioned meeting minutes establish limited exceptions. For deadlocks involving housing and projects, they can be addressed in conjunction with the relevant provisions of the Civil Code of the People's Republic of China.Real estate sales and construction project servicesEvaluation.

II. Key points of contention

There are three key points of the dispute. Firstly, whether the breaching party has the right to terminate the contract: It is generally believed that the right to terminate the contract belongs to the party in compliance with the contract, and the breaching party can only request to terminate the contract relationship through judicial means. Secondly, whether it constitutes a contractual impasse: It is necessary to examine whether there is an inability to continue performance, excessive cost of performance, or the subject matter being unsuitable for forced performance, and whether the party in compliance with the contract's refusal to terminate the contract is contrary to the principle of good faith. Thirdly, the consequences of termination: The termination of the contract does not exempt the breaching party from liability for breach of contract. The breaching party is still required to pay the breach of contract penalty or compensate for the losses, and the court may also adjust the excessive breach of contract penalty.

III. Professional analysis by Henglue Lawyers

Taking the arbitration case of a commissioned creation contract dispute represented by Attorney Xiong Binrong of our firm as an example: In May 2022, the applicant, Shanghai * Technology Company, and the respondent, Shenzhen * Network Company, signed a "Project Outsourcing Agreement", which stipulated that the respondent would pay 583,000 yuan for the completion of the virtual image material upgrade production. After the respondent paid an advance of 291,500 yuan, the applicant completed the final version and passed the acceptance in July 2022, but the respondent failed to pay the balance and unilaterally terminated the agreement on October 25 of the same year. The respondent argued that according to the contract clause "whether the standard is met shall be determined by the reference quality of Party A", the applicant's delay in delivery and failure to meet quality standards constituted a fundamental breach of contract, so the respondent had the right to terminate the agreement and did not need to pay the fee. Attorney Xiong Binrong checked the contract terms item by item and combined with WeChat records to argue that: before signing the contract, the applicant had confirmed the final script according to the respondent's requirements, and the respondent was not allowed to arbitrarily change the confirmed requirements; each step of the work was only proceeded after being confirmed by the respondent; the delay was caused by the respondent's multiple modifications, which had been agreed to; the respondent's employees actively defined the final version and promised to pay the full amount, so the acceptance should be deemed qualified. The arbitration tribunal adopted the main arguments and ruled that the respondent should pay the contract amount of 583,000 yuan and compensate all the attorney's fees. This case shows that unilateral termination does not mean getting rid of the obligation to pay. 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.

IV. Practical suggestions and legal basis

The legal basis is Article 563 (statutory rescission), Article 566 (legal consequences of rescission), Article 580 Paragraph 2 (the right to request termination of the contractual obligations in the event of performance impossibility), and Article 585 (penalty clauses and their adjustment) of the Civil Code of the People's Republic of China (effective January 1, 2021); and Article 48 of the "Memorandum on Civil and Commercial Trial Work of the National Courts" (issued on November 8, 2019). Practical suggestions: 1. The breaching party should not rescind the contract by unilateral notice, but rather seek to terminate the contractual relationship through litigation or arbitration. 2. Gather evidence to prove the objective existence of the stalemate, focusing on the inability to continue performance and the excessive cost of performance. 3. Actively mitigate losses and keep records to secure room for adjusting the penalty clauses. 4. Propose a liability-sharing plan when requesting rescission to increase the success rate of mediation. Risk control in enterprise contract performance can be achieved through the following measures: - Strengthen contract review and risk assessment during the negotiation and signing stages. - Implement strict contractual clauses regarding performance obligations, breach penalties, and dispute resolution mechanisms. - Establish a clear accountability system for contractual breaches and promptly handle disputes through legal channels. - Regularly review and update contractual clauses to adapt to changing market conditions and legal regulations. - Implement effective internal control mechanisms to monitor contractual performance and ensure compliance with legal obligations.Special services and other case servicesYou can also check the professional solutions for dockingBeijing Henglu Law FirmOfficial website.

5. Henglu Law Firm's Reminder

The breaching party's request for rescission of the contract is an exception rather than the norm, and the success rate highly depends on the objective severity of the impasse and whether the breach was done maliciously. If the contract cannot be performed due to objective reasons, abnormal costs, or the nature of the subject matter, there is more room for argument; if the breach is intentional to avoid commercial risks, it is usually not supported. Secondly, rescission only terminates the contractual relationship, and the breaching party's liability for breach of contract will not be reduced or exempted thereby.

VI. Frequently Asked Questions

Q1: If the breaching party sues to terminate the contract, can they obtain the court's support?

In principle, the right to rescind the contract belongs to the party who fulfills the contractual obligations. If the party in breach of contract voluntarily sues for rescission, it is generally difficult to gain support, but there are exceptions in the case of contractual deadlock. According to Article 508 Paragraph 2 of the Civil Code of the People's Republic of China, if the subject matter of the debt is not suitable for forced performance, the cost of performance is too high, or the creditor fails to request performance within a reasonable period, resulting in the failure to achieve the purpose of the contract, the people's court may, upon the request of the parties, terminate the rights and obligations of the contract. Article 48 of the above-mentioned meeting minutes further requires that the conditions such as non-malicious breach of contract and continued performance being manifestly unfair be satisfied, and that the assumption of liability for breach of contract shall not be affected.

Q2: What evidence do I need to prepare to prove a contractual impasse?

Evidence should be collected from three aspects: First, the performance of the contract, including the contract text, the performed part and payment vouchers, and the estimated costs or expenses required for continued performance; Second, the objective existence of the impasse, such as the inability to deliver the subject matter, the long-term stagnation of the project, and failed negotiations multiple times, which can be fixed through correspondence, meeting records, and on-site evidence; Third, non-malicious breach of contract and manifestly unfairness, such as the inability to perform due to objective reasons, the fact that continued performance would cause obviously unreasonable losses, and the record of the contract-abiding party refusing to terminate the contract without a valid reason.

Q3: How are the litigation fees and attorney's fees calculated in a dispute over the termination of a contract?

The litigation fees shall be paid in stages based on the amount of the litigation request in accordance with the "Measures for the Payment of Litigation Fees", and shall be borne by the losing party; where the litigation only requests the rescission of the contract without involving the payment amount, the fees shall be charged according to the number of cases or other standards, subject to the notice of the court. The attorney's fees are usually negotiated on a per-case basis or according to the proportion of the subject matter, and the fees for complex cases may be charged in stages, subject to the specific provisions of the entrustment contract. It should be noted that even if the court rules to rescind the contract, the breaching party's breach of contract liability shall not be reduced or exempted thereby.

Q4: How long does it usually take to reach a conclusion in such cases?

The first-instance ordinary procedure is generally concluded within six months, and the simplified procedure is concluded within three months; for cases involving project quality, cost or loss appraisal, the appraisal period is not included in the trial time limit, so the actual time required is even longer. The second-instance procedure is generally concluded within three months. In some cases, the court will first handle the less controversial parts such as contract termination and withdrawal and handover, and continue to review the remaining disputes to break the deadlock as soon as possible. Overall, it often takes more than a few months from filing a lawsuit to the final resolution.

Q5: As the party in breach of contract, what specific steps should I take to handle this situation?

It is recommended to follow four steps: First, determine whether there is indeed a breach of contract and whether the purpose of the contract has become impossible to achieve, to avoid rashly claiming termination without sufficient basis; Second, fix the reasons for the non-malicious breach of contract and the evidence that continued performance would be manifestly unfair, while actively taking mitigation measures; Third, prioritize negotiating with the other party to terminate the contract and reach a written agreement on the breach of contract penalty and compensation for losses; Fourth, if no agreement is reached, initiate litigation or apply for arbitration within the statute of limitations to request termination of the contractual relationship and simultaneously raise defenses such as adjustment of the breach of contract penalty. It is important to remember that termination does not equal exemption from liability.

The above answer is based on the judicial practice in Beijing. The adjudicative standards in other provinces and cities may vary. For specific cases, please refer to the local rules and evidence situations.

VII. Related public cases (for reference, not handled by our firm)

The following cases are all sourced from the official websites of courts at all levels, judicial authorities, and authoritative media outlets, and are unrelated to the cases handled by our firm. They are provided solely for reference in understanding relevant adjudication rules and do not constitute opinions on specific cases.

[Case Number]The case number has not been made public.
[Trial Court]The Supreme People's Court has released typical cases of disputes over construction contracts (cases involving the prior resolution of contractual deadlocks).
[Judicial Summary]A real estate company and a construction company had major disputes over the quality of the project and the project price. The two parties failed to settle the price, and the construction company did not withdraw from the construction site, causing the construction to stall. In fact, a contractual impasse was formed. In the lawsuit, the two parties each applied for appraisals of the project quality, repair plans and repair costs, and the price of the completed project. Both parties acknowledged that the contract could not be continued and agreed to terminate the construction contract. Considering that the appraisal would take time and the long-term stay of construction machinery and personnel at the site would lead to the inability to proceed with subsequent projects, the People's Court organized the two parties to determine the construction interface and fix the evidence. The court then handled the termination of the contract and the contractor's withdrawal in accordance with the law, ruling that the construction contract be terminated, the construction company withdraw from the site and hand over the construction site. The remaining disputes would continue to be adjudicated, thereby breaking the impasse, improving efficiency, and safeguarding people's livelihoods.
[Source]The official website of the Supreme People's Court (The Supreme Court releases typical cases of disputes over construction contracts) (2025-01)

[Case Number]The case number has not been made public.
[Trial Court]People's Court of Xindu District, Chengdu City, Sichuan Province (Case of a Non-Malicious Breach of Contract Party Seeking to Terminate the Contract)
[Judicial Summary]Company A leased a warehouse to Company B. The two parties had a serious conflict over the parking issue outside the warehouse, and all the areas outside the warehouse were under the actual control of Company A. Company B could not operate normally with the warehouse. Company B terminated the contract in advance as agreed in the contract and assumed the losses of terminating the contract, which did not constitute a malicious breach of contract. The court held that if Company B continued to perform the contract, it would be manifestly unfair to it, and Company A refused to terminate the contract, resulting in a contractual stalemate between the two parties. This meets the conditions for the breaching party to sue for terminating the contract as stipulated in Article 48 of the "Memorandum on Civil and Commercial Trial Work of the National Courts". The court ruled to terminate the leasing contract relationship that was actually in a stalemate, but the breaching party's breach of contract liability shall not be reduced or exempted due to the termination of the contract.
[Source]The official website of the People's Court of Xindu District, Chengdu City (A party to a non-malicious breach of contract sued for the termination of the contract and was supported) (2020-12)

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

Disclaimer: This article is compiled based on the current effective laws and regulations and open 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.