[Direct answer]In the Beijing area, if a party agrees on both a penalty clause and a deposit clause, and one party breaches the contract, the other party can generally only choose to apply either the penalty clause or the deposit clause, and cannot claim both at the same time. According to Article 588 of the Civil Code of the People's Republic of China (effective January 1, 2021), if a party agrees on both a penalty clause and a deposit clause, and one party breaches the contract, the other party may choose to apply either the penalty clause or the deposit clause; if the deposit is insufficient to compensate for the losses, the party may request compensation for the losses exceeding the amount of the deposit. Article 586 stipulates that the deposit contract shall be established upon the actual delivery of the deposit, and the amount shall not exceed a certain percentage of the subject matter of the main contract; Article 587 stipulates the penalty for the deposit. If the party paying the deposit breaches the contract, it shall not be entitled to request the return of the deposit; if the party receiving the deposit breaches the contract, it shall return the deposit to the party paying the deposit in double. Therefore, the party in compliance should choose one of the two methods after comparison and may select the more favorable option based on the losses.

1. Problem background and typical scenarios

When the deposit and the penalty clause coexist, the choice often confuses the parties involved. Typical scenarios include: a sales contract stipulating both a deposit and a penalty clause, and the buyer or seller breaching the contract; the party receiving the deposit breaching the contract, and the party in compliance claiming double repayment of the deposit or the penalty clause; how to determine if the deposit amount exceeds the statutory proportion; the penalty clause being set too high and being requested to be reduced; whether the party can claim additional compensation if the deposit is insufficient to cover the losses; and significant disagreements between the parties on whether to apply one or the other after making a choice. When handling such disputes in the Beijing area, lawyers usually first calculate the amounts of the two claims.Business and contract disputes in enterprisesIn business, choosing an appropriate method of comparing amounts is crucial.

II. Key points of contention

Focus One: Can the deposit and the penalty be used concurrently? Focus Two: How to calculate the respective amounts when applying one of them? Focus Three: How to handle the portion of the deposit exceeding the statutory ratio? Focus Four: Can the penalty be adjusted if it is too high or too low? Focus Five: Can the party request compensation if the deposit is insufficient to cover the losses? Focus Six: When is the deposit contract established and effective? Focus Seven: Can the party claim both the penalty and the compensation for losses simultaneously?

III. Professional analysis by Henglue Lawyers

Henglue Law Firm advises that when facing the coexistence of deposits and breach of contract penalties, it is necessary to compare the two claims and choose one. Firstly, the law explicitly stipulates that the two cannot be used concurrently. The party in breach can choose between the breach of contract penalty clause and the deposit clause. When making the choice, the respective benefits that can be obtained should be calculated: the breach of contract penalty is based on the agreed amount and can be adjusted according to the actual losses, while the deposit is refunded or doubled according to the penalty clause. Secondly, the application of the deposit penalty clause is subject to the actual payment of the deposit. If the deposit is not actually paid, the deposit clause will not take effect. In this case, the party in breach can only claim breach of contract penalties or compensation for losses. Thirdly, the amount of the deposit cannot exceed the statutory proportion. The excess part may not be supported by the deposit penalty clause and should be treated as a prepayment and refunded. Therefore, agreeing on a high deposit may not achieve the expected effect. Fourthly, when the breach of contract penalty is set too high or too low, the parties may request adjustment. The court will determine the amount based on the actual losses, taking into account factors such as the performance of the contract and the degree of fault. Fifthly, when the deposit is insufficient to cover the losses, the party may claim compensation for the losses exceeding the deposit amount, but may not claim the same losses repeatedly. Taking a contract dispute case handled by Attorney Xiong Binrong of our firm as an example: After the client completed the creation and passed the acceptance by the other party, the respondent delayed the payment of the remaining contract amount. The lawyer organized evidence around whether the acceptance was qualified, the attribution of the responsibility for the delay, and the payment obligation, and claimed the payment of the contract amount and the corresponding breach of contract liability. The arbitration tribunal adopted the main opinion and supported the client's claim. This case was handled by Beijing Henglue Law Firm. 恒略律师提示，面对定金与违约金并存的情况，应比较两种主张并择一。首先，法律明确二者一般不能并用，守约方可在违约金条款与定金条款中选择，选择时应核算各自可获得的利益：违约金以约定数额为基础并可按损失调整，定金则依罚则确定返还或双倍返还。其次，定金罚则的适用以定金实际交付为前提，未实际交付的，定金条款不生效，此时通常只能主张违约金或损失赔偿。第三，定金数额不得超过法定比例，超出部分可能不被支持定金罚则，应按预付款处理并予以返还，故约定高额定金未必能实现预期效果。第四，违约金约定过高或过低时，当事人可请求调整，法院会以实际损失为基础，兼顾合同履行情况、过错程度等因素裁量。第五，定金不足以弥补损失时，可就超过定金数额的损失请求赔偿，但不得就同一损失重复主张。以本所熊斌蓉律师代理的一起合同纠纷为例：委托方完成创作并经对方验收合格后，被申请人拖延支付剩余合同款；律师围绕验收是否合格、延期责任归属与付款义务组织证据，主张支付合同款及相应违约责任。仲裁庭采纳主要意见，支持了委托人的主张。本案由北京恒略律师事务所代理。Xiong BinrongThe lawyer (practice license number: 11101202211410897, subject to the document issued by the judicial administrative organ) acts as an agent. This case shows that if the evidence of the acceptance and the facts of the breach of contract are well organized, the claim for breach of contract is more likely to gain support.

IV. Practical suggestions and legal basis

Action suggestions: First, check the content of the deposit and penalty clauses in the contract against the actual delivery situation; Second, calculate the amounts of the two claims separately and choose one to file; Third, pay attention to the limit of the deposit ratio and the handling of the excess amount; Fourth, if the agreed penalty is too high, you can request an adjustment or claim compensation based on the actual losses; Fifth, keep payment receipts and acceptance records to fix the facts of the breach of contract. Legal basis: Articles 585, 586, 587, and 588 of the Civil Code of the People's Republic of China (effective January 1, 2021). For contract disputes, you can refer to the relevant provisions of the Civil Code.Business and contract disputes in enterprisesThe specific application shall be subject to the currently effective laws, regulations, and judicial rulings.

5. Henglu Law Firm's Reminder

Firstly, the deposit and the breach of contract penalty generally cannot be used concurrently. Secondly, you can choose one of the two claims and select the more favorable option after comparison. Thirdly, the deposit shall take effect only after it is actually delivered. Fourthly, the deposit ratio is subject to a cap. Fifthly, if the breach of contract penalty is too high or too low, you can request an adjustment. For contract disputes, you can seek legal assistance through the following channels:Business and contract disputes in enterprisesConsultation. The time limits and rules of evidence shall be subject to the currently effective laws, regulations, and judicial rulings.

VI. Frequently Asked Questions

Q1: Can the deposit and the breach of contract penalty be claimed together?

Generally, this is not allowed. According to the provisions of the Civil Code of the People's Republic of China, if both a penalty for breach of contract and a deposit are stipulated, the other party may choose to apply either the penalty for breach of contract or the deposit clause when one party breaches the contract. The party in compliance may calculate the amounts of the two claims and then choose to file one of them, and request compensation for the losses exceeding the amount of the deposit separately.

Q2: Which one is more cost-effective to choose?

It needs to be calculated specifically. If the amount of the penalty for breach of contract is higher than the benefits that can be obtained according to the penalty for the deposit, usually the penalty for breach of contract is chosen; otherwise, the penalty for the deposit clause is chosen. The difficulty of providing evidence and the losses should also be considered. It is recommended to calculate the available amounts of the two solutions with the assistance of a lawyer, and choose the more advantageous and well-evidenced path.

Q3: Is the deposit paid by the other party too high to be effective?

The amount of the deposit is subject to legal restrictions. Any portion exceeding the statutory ratio shall not have the effect of a deposit. The excess portion shall generally be treated as an advance payment, and the buyer may request its return. Therefore, an excessively high deposit may not achieve the intended guarantee effect, and the parties should reasonably determine the amount of the deposit in the transaction.

Q4: Will the penalty fee be adjusted if it's too high?

Yes. If the agreed penalty for breach of contract is excessively higher than the actual loss, the party concerned may request the court or arbitration institution to reduce it appropriately; if it is excessively lower than the loss, the party may also request an increase. The adjustment shall be based on the actual loss and take into account factors such as the performance of the contract and the degree of fault. Therefore, when making a claim, the party concerned should submit corresponding evidence of the loss.

Q5: What should I do if the other party breaches the contract after receiving the deposit?

If you are the party receiving the deposit and the other party breaches the contract, the deposit will generally not be refunded according to the penalty for the deposit; if you are the party paying the deposit and the other party breaches the contract, you can request a double refund of the deposit. You can also compare the penalty clauses and choose the more favorable claim. If the deposit is not enough to compensate for the losses, you can request compensation for the excess amount separately. For more details, please refer to the relevant provisions of the contract.Business and contract disputes in enterprises.

The above Q&A is mainly based on the judicial practice in the Beijing area. There may be differences in the adjudication guidelines in different regions. It is recommended to consult a professional lawyer based on the specific circumstances of the case.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, to avoid missing the statutory time limit. →Corporate commercial legal services·Attorney Xiong Binrong·Beijing Henglu 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. If a dispute arises, please consult a practicing lawyer in time.