[Direct answer]In the Beijing area, the penalty for breach of contract and statutory compensation for losses are not simply an either-or choice. According to Article 585 of the Civil Code of the People's Republic of China, if the agreed penalty for breach of contract is lower than the actual losses caused, the party may request that it be increased to the actual losses; if it is excessively higher than the losses, the party may request that it be appropriately reduced. That is, the penalty for breach of contract serves to compensate for the losses and is generally not used in conjunction with compensation for losses, but can be adjusted to the amount of the losses. According to Article 588, the deposit and the penalty for breach of contract can only be applied one at a time. If the deposit is insufficient to compensate for the losses, the party may request compensation separately. Whether it is possible to claim both simultaneously depends on the nature of the agreement and the evidence of the losses. For more details, please refer to the relevant provisions of the Civil Code of the People's Republic of China.Business and contract dispute services for enterprises.

1. Problem background and typical scenarios

After a breach of contract, the party in compliance often asks whether it can claim both the breach of contract penalty and compensation for losses. Typical scenarios include: a sales contract stipulates a breach of contract penalty for late payment, but the party in compliance also claims actual losses (such as the resale price difference and interest); a service contract stipulates a fixed breach of contract penalty, but the actual losses of the party in compliance far exceed or far fall short of that amount; and when both a breach of contract penalty and a deposit are stipulated, the party in compliance does not know which one to choose when there is a breach of contract. Many parties mistakenly believe that they can claim as much as they write in the contract, or that they must choose one of the two and cannot supplement it. In practice, the court balances the interests of both parties on the principle of making up for the losses. When it comes to collecting debts and debts, it can be combined with other circumstances.Creditor-debtor relations and enforcement case servicesAdvance.

II. Key points of contention

There are three main points of contention. Firstly, the relationship between the penalty clause and the compensation for losses: The penalty clause is a predetermined compensation for damages, and in principle, it cannot be used concurrently with the actual compensation for losses. However, if the agreed amount is too low, it can be increased to the actual losses; if it is too high, it can be reduced. In essence, the compensation for losses remains the upper limit. Secondly, the exclusion of the penalty clause and the deposit: According to Article 588 of the Civil Code, only one of the two can be chosen. If the deposit is insufficient to compensate for the losses, the party may seek additional compensation. Thirdly, the burden of proof for losses: To claim for an increase in the penalty clause or additional compensation, it is necessary to prove the existence and amount of the actual losses. For those involved in contract drafting, they can refer to the relevant provisions of the Civil Code for guidance.Intellectual property protection and corporate legal servicesAgree on reasonable breach of contract clauses.

III. Professional analysis by Hengluo Law Firm

Based on an arbitration case of a commissioned creation contract dispute handled by Beijing Henglu Law Firm, the practical standards can be seen. In May 2022, Shanghai A Technology Company and Shenzhen B Network Company signed a "Project Outsourcing Agreement", agreeing to upgrade G virtual IP materials at a cost of 583,000 yuan. After the work was accepted and qualified in July 2022, the respondent delayed paying the remaining 50% of the fee. The applicant entrusted lawyer Xiong Binrong of Henglu Law Firm to apply for arbitration, requesting payment of the contract fee of 583,000 yuan, the overdue payment penalty of 116,600 yuan, and attorney's fees and arbitration fees. The parties' disputes focused on whether the work had been accepted and qualified, the attribution of the responsibility for the delay, and whether the payment could be refused. The arbitration tribunal adopted the lawyer's main opinion, determining that the work had been accepted and qualified and that the respondent should pay the fee. Only the claim for the overdue payment penalty was adjusted. In the end, the tribunal ruled to pay the contract fee of 583,000 yuan and compensate for all attorney's fees. This case was handled by Beijing Henglu Law Firm.Xiong BinrongThe attorney (practice license number: 11101202211410897, subject to the document issued by the judicial administrative organ) acts as the agent. This case shows that the agreed penalty for breach of contract is not fixed and can be adjusted by the arbitration tribunal if it is excessively higher than the actual losses. The party in compliance should claim on the basis of the contract amount and reasonable losses, and consult a professional lawyer to optimize the contract structure when necessary.

IV. Practical suggestions and legal basis

The core basis is Article 85 of the Civil Code of the People's Republic of China (effective January 1, 2021) (adjustment of the penalty for breach of contract: if it is lower than the actual loss, it can be increased to the actual loss; if it is excessively high, it can be reduced), Article 588 (the choice between the deposit and the penalty for breach of contract, and if the deposit is insufficient, the party may seek additional compensation), and Article 577 (liability for breach of contract). Practical suggestions: When signing a contract, stipulate a penalty for breach of contract that matches the foreseeable loss to avoid an excessively high or low penalty; promptly fix the evidence of the loss after the breach of contract (resale contract, appraisal, interest certificates); to request an increase in the penalty, the party must provide evidence of the actual loss; to request a reduction in the penalty, the party can compare it with the same standard. When multiple provisions coexist, they can be combined together.Business and contract dispute resolution services for enterprisesReview the contract structure.

5. Henglu Law Firm's Reminder

The penalty for breach of contract and compensation for losses are not an either-or dichotomy: the penalty for breach of contract itself has a compensatory function and generally cannot be superimposed with actual losses, but it can be adjusted to the actual amount of losses; it is only with the deposit that there is a true either-or relationship. Do not believe that you can get whatever is stipulated in the contract. Excessively high penalties for breach of contract may even be reduced. It is recommended to set reasonable clauses during the contract signing stage, provide accurate evidence after breach of contract, and consult professional lawyers to design claim paths when necessary. For contracts involving cross-regional performance, you can seek assistance from relevant professional institutions.Special services and other case-related servicesEvaluate jurisdiction and enforcement.

VI. Frequently Asked Questions

Q1: Can the breach of contract penalty and statutory damages be claimed simultaneously, and will they be supported by the court?

Generally, it is not possible to claim for full compensation at the same time. The penalty clause is a pre-agreed damage compensation, whose function is to make up for the loss. In principle, it should not be used together with the actual loss compensation; but if the agreed penalty is lower than the actual loss, the party may request the court or arbitration institution to increase it to the actual loss amount. At this time, the increased penalty already includes loss compensation and is not an additional superposition. If the agreed penalty is too high, the other party may also request a reduction. What is truly mutually exclusive are the deposit and the penalty clause - according to Article 588 of the Civil Code, only one can be chosen. If the deposit is insufficient to make up for the loss, the party may separately request compensation for the excess part. Hengluo Lawyers suggest designing the claim based on the actual loss to avoid having the repeated claim being rejected.

Q2: If I want to claim breach of contract penalties or compensation for losses, what evidence do I need to prepare?

The core evidence includes: contracts and breach of contract clauses (proving the agreed penalty or compensation), materials showing the other party's breach of contract (late notice, acceptance records, communication records), proof of actual losses (resale price difference contracts, appraisal reports, interest calculations, expense invoices), records of debt collection and negotiation (proving that the rights have been asserted), and evidence of payment and performance. The organization of evidence should focus on three points: the establishment of breach of contract, the authenticity of losses, and the quantifiability of the amount. If claiming to increase the penalty, the emphasis should be on proving that the actual losses are higher than the agreed amount; if claiming to reduce it, the comparison should be made with industry standards and foreseeable losses. The more complete the materials are, the easier it will be to support the claim.

Q3: If I sue the defaulting party, what are the approximate costs of attorney fees and litigation fees?

The litigation fees shall be calculated according to the "Measures for the Payment of Litigation Costs", based on the amount of the litigation request and accumulated in stages. The losing party shall bear the fees; for property cases, the higher the subject matter amount, the lower the fee rate. Lawyer's fees shall be determined according to the complexity of the case, the subject matter amount, and the lawyer's qualifications, and shall be charged on a per-case, hourly, or percentage basis. The specific fees shall be subject to the contract of entrustment, and there is no unified government pricing. Some contracts stipulate that the lawyer's fees shall be borne by the defaulting party, and the claimant may claim according to the contract. It is recommended to calculate the total amount of the breach of contract damages and losses that can be claimed before suing, compare it with the lawyer's fees and litigation costs, and make a rational choice on the obviously unfounded high claims, focusing on the parts that can be supported.

Q4: How long does it usually take to resolve a dispute over a breach of contract penalty?

The timeframe depends on the legal process and the specific circumstances of the case: for first-instance ordinary proceedings, the case is typically concluded within six months; for summary proceedings, it's usually completed within three months; for arbitration cases, it usually takes several months according to the rules; for minor breach of contract cases with clear facts, summary proceedings are more likely to be applied, with a shorter timeframe. If the other party appeals, the second-instance proceedings typically take three months. If the defendant refuses to perform after the judgment takes effect, it is necessary to apply for compulsory enforcement, and the enforcement period depends on the situation of property investigation and control. Overall, simple cases often take several months from filing the lawsuit to collecting the payment, while complex cases may take more than a year. It is recommended to apply for property preservation simultaneously during the litigation to prevent the other party from transferring assets and shorten the actual time for collecting the payment.

Q5: If the other party breaches the contract, what is the most secure way for me to assert my rights?

Here's the translation of the Chinese (Simplified) sentence into English, with a detailed explanation: Suggested four steps: First, fix the evidence of breach of contract and proof of losses, clarifying the time and amount of unpaid obligations. Second, check the contract provisions to determine whether it's a penalty clause, a deposit clause, or a compensation for losses. A deposit and a penalty clause can only be chosen one at a time, and the penalty clause can be adjusted to reflect the actual losses. Third, send a letter of demand and keep records first, giving the other party an opportunity to fulfill their obligations and preserving evidence for future litigation. Fourth, if negotiations fail, file a lawsuit within the statute of limitations. When making claims, use the actual losses as the basis to avoid unreasonably high claims being reduced. Throughout the process, you can consult a professional lawyer for advice and guidance.Business and contract dispute services for enterprisesDesign the optimal solution.

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

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

Disclaimer: This article is compiled based on the current effective laws and regulations and public 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 you encounter disputes, please consult a practicing lawyer in time.