B.Right of Rescission (che xiao quan)The right of rescission refers to the obligee’s rightto ask the Court for rescission where the obligor has acted to the prejudice ofhis obligation. Compared to the subrogation right of the obligee under theregime for preservation of obligatory rights, the effect of rescission isstronger, because when the obligee subrogates to enforce the obligor’s presentright, his influence is minor, whether to the obligor or the sub-obligor.However, when he rescinds the obligor’s conduct to recall property subject tothe liability, the damage he causes to an established legal relationshipcreates a major impact. Thus, theoretically, the conditions for enforcingrescission should be restricted strictly to avoid ruining the safety oftransactions. However, Contract Law stipulates that the right of rescission ismerely limited to three situations where the obligor’s conduct is prejudicialto the obligation, such as where the obligor renounces obligations that aredue, and where he transfers property to third parties gratuitously or at pricesthat are so low as to be obviously unreasonable.
　　　　or example, Company A owes Company B a debt of RMB500,000 and due to poormanagement, only a BMW is left of the company’s asset. Company A sells the BMWthat is worth RMB600,000 to a friend, C, for RMB200,000. According to theregime for rescission of rights, Company B has the right to recall the BMW fromC because Company A’s conduct, in dealing with the BMW, has directly harmed therights of Company B, and has led to its inability to realise the obligation.However, if Company A has sufficient assets to repay the obligation that isowed to Company B, A’s disposal of the BMW is valid and Company B cannot makeuse of the regime of rescission to recall the BMW from C.
　
　The following are elements for rescission by theobligee: Firstly, the obligee must have an effective obligation against theobligor. The existence of an effective obligation against the obligor forms theprerequisite and foundation to the obligee enforcing his right of rescission,and the aim of such a right should generally be the payment of property.
　　　　econdly, the obligor must have performed certain acts to dispose of property.When the obligor disposes property, Contract Law restricts the rescissibilityof such acts to where the obligor renounces his obligatory rights and where hetransfers property to third parties gratuitously, or at prices that are so lowas to be obviously unreasonable.
　　　　hirdly, the obligor’s acts must be prejudicial to the obligation. As theobligor’s act leads to a decrease of his financial ability to discharge hisobligation and a disability to satisfy its demands, such prejudice to itsrealisation forms an important criterion for determining the obligee’srescissionary right. In setting up a regime for rescission, contract law aimsto ensure total discharge of the obligor’s obligation by preserving theproperty that is subject to liability, reflecting an inclination of moderncivil law towards strengthening contractual reliance to protect the obligee’sinterest.
　　　　ourthly, malice is not a condition for rescission of gratuitous conduct, thatis, rescission can be enforced both with and without malice. However, malice isa condition for rescission of conduct that provides consideration. 移到上一段With respect to conduct that provides consideration,such as the obligor transferring property at such low prices that are obviouslyunreasonable, both the obligor and third party must possess malice. Theobligor’s malice is the condition for establishing rescission, while theenriched party’s malice is the condition for enforcing rescission.
　　　　
　
　The obligee’s right to rescind destroys the legalrelationship between the obligor and the third party. A long-term failure toenforce the rescissionary right places the relationship between the obligor andthe third party in a long-term unstable state, and is disadvantageous towardsprotecting the interests of the obligor and the third party. Thus, Contract Lawstipulates that the right to rescind is extinguished if such right is notenforced one year from the date on which the obligee knows or ought to know ofthe matter subject to rescission, or within five years from the date on whichthe obligor performs the relevant act.
　　　　he Supreme People’s Court interprets the period for rescission of contract asan “unchangeable period” (bu bian qi jian),
　　　　here the rules for limitation of action - suspension, discontinuance orextension - are not applicable.
　　　　
　
　The obligee must enforce the recessionary right inhis own name and bring an action in the People’s Court to seek rescission ofthe obligor’s unjust disposal of the property. In addition, the scope forenforcement of this right is limited to the extent of the obligee’s obligation.With regards to the scope for enforcing recessionary rights, basically, twoviews exist: when numerous rights are prejudiced by the conduct of the sameobligor, the first view deems that each obligee has the right to sue forrescission, the scope of their claim being limited only by the sphere ofprotection for each individual obligatory right.
　　　　he other view opines that since enforcement of rescission aims to protect theproperties of all parties, the scope of this enforcement is not limited toprotecting the value of the rights that the obligee enforces, but should extendto the protection of all the rights of all the obligees.
　　　　owever, the judicial constructionof the Supreme People’sCourt has limited the scope for enforcing subrogration rights to each obligee’sextent of protection of his right.
　　　　
　
　C.Right to Demur when Adversely Affected (buan kang bian quan)
　　　　fter the formation of a bilateralcontract, if the party who is obliged to perform first has concrete proof thatthe other party cannot, or has the possibility of being unable to, perform hiscontractual obligations, he can exercise his right to demur when adverselyaffected. This refers to the right, as seen in the above situation, to rejectperforming one’s contractual obligations first before the other party performsor provides a guarantee.
　
　The following conditions establishthe right to demur when adversely affected:
　　　　irstly, both parties in a bilateral contract must have mutual paymentobligations. The right to demur when adversely affected can only take effect ina bilateral contract, just like the right to demur for concurrent performance (tong shi lü xing kang bian quan).Secondly, there must be a chronological order for performance of the contract,whereby one party performs first while the other performs later. If there is nochronological order in the parties’ performance, then the right to demur forconcurrent performance may arise instead of the right to demur when adverselyaffected. Thirdly, the party who should first perform the contract must haveconcrete evidence to prove that the party who should perform later has lost, ormay lose, the ability to perform after the formation of the contract. Thisinvolves three elements: (1) the later-performing party loses or may lose hisability. (2) The later-performing party loses or may lose his ability toperform his obligations after formation of the contract.
　　　　3) The first-performing party bears the burden of proving the facts. Inasserting his right to demur when adversely affected, the first-performingparty must have concrete proof that the other party has lost or may lose theability to discharge the contractual obligations, he cannot rely on his ownsubjective speculations.
　
　In enforcing the right to demurwhen adversely affected, the first-performing party can suspend hisperformance, but he should inform the other party and give a reasonable timelimit for the latter to recover his ability to perform or to provide a suitableguarantee. The act of suspending performance is lawful and does not amount tobreach of contract. If the party who should perform later is unable to providea guarantee or recover his ability to perform within the reasonable time limit,and still requests the other party to perform, this first-performing party canreject to perform. If the later-performing party is able to provide a guaranteeor recover his ability to perform within the reasonable time limit, thefirst-performing party should continue his performance of the contract.
　　　　his fully reflects the temporary nature (yishi kang bian quan) of the right to demur when adversely affected.
　
　However, the right to demur whenadversely affected in Contract Law clashes with the provisions in Article 94,section 2 of the same statute.
　　　　s Contract Law did not stipulate clearly the conditions under which the latterprovision is applicable, it thus applies to both situations of concurrentperformance and sequential performance. When one party expresses clearly thathe will not perform his obligation, the other party can use Article 94, section2 to enjoy directly his right to repudiate the contract. However, when a partyshows evidently with his conduct, that he will not perform the main obligation,his conduct can be interpreted as an expression of non-performance of theobligation; or the loss, or probable loss, of his ability to perform theobligation. In the former situation, the other party can repudiate the contractdirectly; but in the latter situation, the other party can only enjoy the rightto demur when adversely affected. He can suspend his performance of thecontract and request the opposite party to provide a performance guarantee, buthe has no right to repudiate the contract directly. The emergence of twodifferent operative methods in the same statute has led to a contradiction inthe application of the law. If the first-performing party is allowed to electto apply Article 94, section 2 of Contract Law, the likelihood of situationswhere he abuses the right to repudiate the contract is high. The substance ofthe regime for the right to demur when adversely affected – protection of thelegal interests of the later-performing party –will thus deteriorate and prejudice theexpectancy interest of the later-performing party.

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