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how the orderly performance plea should be termed. Some argue that the orderly performance plea should be named as the defense right for prior performance because it is the right against the party who should perform first.29 Others disagree. They suggest that the orderly fulfillment plea should be called the defense right for subsequent performance since the right of defense in this case belongs to the subsequently performing party.30 However it is named, in order not to be confused, one should bear in mind that orderly fulfillment plea in China generally mean the Article 67 right of defense.31

4.2. Unrest Defense

Originated in civil law system, the unrest defense means that under certain circumstances, the party who should perform first the contract obligations (commonly called in China the prior performing party) may suspend its performance until the other party’s performance is ascertained. The unrest defense provides the prior performing party with right to suspend its performance if it believes with certainty that the other party will not or will not be able to perform at the time of performance. As a result of exercise of the unrest defense, the performance of the prior performing party is suspended unless and until the other party’s performance is guaranteed or is proven to be certain.32

Article 68 of the Contract Law provides the unrest defense right under which the prior performing party may suspend its performance if it has conclusive evidence of any of the followings: (1) the other party’s business conditions are seriously deteriorating; (2) the other party moves away its property or takes out its capital to evade debts; (3) the other party loses its business credibility; or (4) other circumstances showing that the other party loses or is likely to lose its capacity of performance.33 Clearly the unrest defense right is a legal device to protect the interest of the prior performing party. It defers from the orderly fulfillment plea in that the orderly fulfillment plea is concerned about the protection of the interest of the subsequent performing party.

Like the fulfillment plea, the unrest defense is available only in bilateral contracts. There are two factors that are regarded essential to assert the unrest

29See Dong Ling, supra note 11 at pp. 75–77; See also Li Guoguang, supra note 18 at pp. 294–296.

30See Wang Liming, supra note 25 at pp. 100–104.

31Few scholars name the unrest defense as the right of prior performance defense. See Cui Yunling, supra note 8 at p. 172.

32Some scholars compare doctrine of the unrest defense to the concept of implied anticipatory repudiation as used in the United States and believe that these two are substantially the same. By implied anticipatory repudiation, it was referred to the “prospective inability” stated in UCC § 2-609. See Dong Ling, supra note 11 at p. 79.

33See the Contract Law, art. 68.

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defense. First, the party who asserts the unrest defense must be obligated to perform first under the contract, and the other party will perform thereafter. The consecutive performances between the parties make it necessary to protect the interest of the party who performs first. Second, there should exist definite evidences that the other party’s ability or capacity to perform has been impeded so seriously that the performance is unlikely to take place, and the impediment is caused by the statutory reasons as listed in Article 68. If, however, as Article 68 further provides, it turns out that the prior performing party asserts unrest defense to suspend its performance without conclusive evidence, the asserting party shall be liable for breach of contact.

There is a question about when the change of the situations that affect the subsequent performing party’s ability to perform would count for making the unrest defense by the prior performing party. For example, under Article 68 of the Contract Law, the prior performing party may suspend its performance if the other party’s business conditions are seriously deteriorating. Should the fact of deteriorating business situation of the other party occur before the conclusion of the contract or afterwards in order for the prior performing party to be able to assert unrest defense?

It is generally held that the unrest defense applies to the situation that has changed after the contract is formed. The reason is that if the prior performing party has the knowledge of the other party’s deteriorating business situation at the time of contract, the doctrine of assumption of risk may prevent the prior performing party from asserting any defense. It is suggested that even if a party made a contract with the other party without the knowledge that that the other party’s business situation had deteriorated before the contract was concluded, the party may seek for recession of the contract, but not the unrest defense.34

Another question is whether the unrest defense should be made before the performance of the contract is due or could be made after the prior performing party has started its performance. The Contract Law is not clear about it because Article 68 only provides that the prior performing party may suspend its performance if it has conclusive evidence that the other party is unlikely to perform. The general implication is that the unrest defense is available after conclusion of the contract and before performance of the contract since the unrest defense serves as a safeguard for the prior performing party against the possible harm caused by the other party’s failure to perform.35

34See Wang Liming, supra note 25 at p. 107.

35But, some argue that the unrest defense may also be asserted by the performing party after its performance began. In other words, the performing party will not be held liable for breach of contract if it suspends its on-going performance when it believes with evidence that the other party will not be able to perform. See Dong Ling, supra note 11 at pp. 87–88.