[Direct answer]In the Beijing area, only one of the two can be applied, and they cannot be claimed simultaneously. According to Article 588 of the Civil Code of the People's Republic of China (adopted in 2020 and implemented on January 1, 2021), if the parties have agreed on both the penalty for breach of contract and the deposit, the other party may choose to apply either the penalty for breach of contract or the deposit clause when one party breaches the contract; if the deposit is insufficient to compensate for the losses caused by the breach of contract, the other party may request compensation for the losses exceeding the amount of the deposit. Article 586 stipulates that the parties may agree that one party shall pay a deposit to the other party as a guarantee of the creditor's rights. The deposit contract shall be concluded when the deposit is actually paid. The amount of the deposit shall be agreed upon by the parties, but it shall not exceed 20% of the subject matter of the main contract. The part exceeding this amount shall not produce the effect of the deposit. Article 587 stipulates the penalty for the deposit: if the party paying the deposit fails to perform the obligation or performs the obligation in violation of the agreement, resulting in the failure to achieve the purpose of the contract, it shall not have the right to request the return of the deposit; if the party receiving the deposit fails to perform the obligation or performs the obligation in violation of the agreement, resulting in the failure to achieve the purpose of the contract, it shall double the amount of the deposit and return it to the party paying the deposit. Therefore, in the face of a contract that simultaneously stipulates the penalty for breach of contract and the deposit, the party in compliance with the contract should first compare the actual benefits of the two remedies and then choose the one that is more beneficial to themselves.

I. Problem Background and Typical Scenarios

In the practice of contracts such as sales, leases, contracting, and services, in order to strengthen the enforcement of contractual obligations, parties often simultaneously include penalty clauses and deposit clauses. Typical cases include: in a house purchase contract, the buyer is required to pay a deposit, and at the same time, a penalty for late payment is stipulated; in an equipment procurement contract, an advance payment with the nature of a deposit is stipulated, and a penalty for late delivery is also stipulated; in service contracts such as decoration and advertising, both a deposit and a penalty for project delay are stipulated. Once the other party breaches the contract, the party in compliance often hopes to "get both ends", that is, confiscate or double return the deposit and claim the penalty. However, this claim is usually not supported in practice. In addition, attention should be paid to terms such as "deposit", "security deposit", "guarantee deposit", and "advance payment". If the contract does not explicitly stipulate the application of the deposit penalty, the deposit generally does not have the effect of a deposit, and can only be treated as an advance payment or a general guarantee.

II. Key points of contention

First, determination of the nature of the clause: whether the amount agreed upon by the parties is a deposit, a down payment, a security deposit, or an advance payment. Second, whether the deposit contract is valid. A deposit contract is valid only when the deposit is actually paid. If it is only agreed upon but not paid, it generally does not produce the effect of a deposit. Third, whether the amount of the deposit exceeds 20% of the subject matter of the main contract. The portion exceeding this amount does not produce the effect of a deposit. Fourth, the rules for adjusting the penalty for breach of contract and the deposit when they are not used concurrently. Fifth, the rules for adjusting the penalty for breach of contract when it is too high or too low, and the request for supplementary compensation for the excess amount when the loss cannot be compensated after choosing the penalty for breach of contract.

III. Professional analysis by Henglue Law Firm

The key to handling the conflict between breach of contract penalties and deposits is to "clearly calculate the two amounts and choose the right path". In practice, we usually judge in three steps: Firstly, determine whether the deposit is validly established, including whether it has been actually paid and whether the amount exceeds 20% of the contract price. Based on this, calculate the actual amount of the deposit penalty, that is, the double refund amount to the recipient in the event of a breach by the recipient, or the amount confiscated in the event of a breach by the payer; Secondly, estimate the amount of the breach of contract penalty that can be supported. The breach of contract penalty is mainly to compensate for the actual losses. If the agreed breach of contract penalty is excessively high compared with the losses caused, the breaching party may request a reasonable reduction. In the judgment, the actual losses are usually taken as an important reference; Thirdly, compare the two and choose the higher one. If the deposit penalty is still insufficient to compensate for the losses, the party may request compensation for the losses exceeding the amount of the deposit separately. Taking the arbitration case of a commissioned creation contract dispute handled by Henglue Law Firm as an example: After the producer completed the work and passed the acceptance by the other party, the other party not only delayed the payment of more than 500,000 yuan in contract money but also unilaterally terminated the agreement. The lawyer organized evidence based on the contract terms and communication records, and argued that the work had been confirmed step by step, the delay was caused by the other party and agreed by them, and the results had been accepted and delivered. Finally, the arbitration tribunal adopted the main attorney's opinion and ruled that the contract money should be paid and all attorney's fees compensated. This case shows that when the other party breaches the contract, a complete sorting out of the contract terms and the evidence of performance directly determines whether the claim can be supported. Those involved in contract disputes can refer to it.Business and contract disputes in enterprises; The aspects related to the recovery of funds and enforcement can be combined togetherCreditor's rights and debts, and enforcement casesThe case is handled by Beijing Henglu Law Firm.Xiong BinrongThe lawyer (practice license number: 11101202211410897, subject to the document issued by the judicial administrative organ) acts on behalf of the client, relying on his accurate understanding of the local adjudication principles and practical rules, to help the client achieve favorable results.

IV. Practical suggestions and legal basis

According to Article 585 of the Civil Code of the People's Republic of China (effective January 1, 2021) regarding the provisions on liquidated damages and their adjustment, Article 586 regarding the provisions on deposit contracts, the establishment of delivery, and the maximum amount, Article 587 regarding the provisions on the penalty for deposits, Article 588 regarding the provisions on the choice of applying either liquidated damages or deposits and supplementary compensation, as well as the provisions on the adjustment of liquidated damages and the application of deposit rules in the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the General Provisions of the Contract Chapter of the Civil Code of the People's Republic of China (effective in 2023), it is recommended to follow four steps: First, check the expression of the deposit and liquidated damages clauses in the contract to determine whether the application of the penalty for deposits is clearly stipulated; Second, verify whether the deposit has actually been paid and whether the amount exceeds 20% of the subject matter of the main contract; Third, separately calculate the amount obtained from the penalty for deposits and the amount of liquidated damages that may be supported, and choose the better option after comparison; Fourth, if the choice of the penalty for deposits is still insufficient to compensate for the losses, claim compensation for the excess part and prepare evidence of the losses. For contract disputes and recovery of funds, reference can be made to the above-mentioned provisions.Business and contract disputes in enterprises.

5. Henglue Law Firm's Advice

The "deposit plus penalty" is not a double insurance, but a multiple-choice question. Three reminders: First, don't think you can use them simultaneously. If you claim both at the same time, you will usually be asked to choose one of them; Second, don't ignore the two prerequisites of deposit payment and proportion. If the deposit is not actually paid or exceeds 20% of the subject matter amount, the deposit will not produce any effect; Third, don't just focus on the agreed amount. The penalty should be commensurate with the actual loss. If the claim is obviously too high, it may be reduced instead.Beijing Henglue Law FirmIt is recommended that enterprises design clear relief paths when signing contracts, and specify whether to adopt a deposit or a breach of contract penalty, in order to avoid disputes arising afterwards.

VI. Frequently Asked Questions

Q1: If the contract stipulates both the penalty for breach of contract and the deposit, can I claim both of them?

No. According to Article 588 of the Civil Code, when one party breaches the contract, the other party can only choose to apply the penalty clause or the deposit clause; but if the deposit is insufficient to compensate for the losses, the other party may request compensation for the losses exceeding the amount of the deposit.

Q2: What evidence do I need to prepare?

The contract and its annexes, the deposit payment receipts and the confirmation of receipt, the communication records between the two parties, the performance and acceptance materials, the proof of losses caused by breach of contract (such as substitute transaction contracts, price difference receipts, and expense invoices), and the detailed calculation of losses.

Q3: How much does it cost to claim the breach of contract penalty or the deposit?

The litigation fees shall be paid according to the standard based on the amount of the litigation subject; if a lawyer is engaged, the fees shall be charged according to the proportion of the subject amount or on a per-stage basis, subject to the provisions of the written entrustment contract. Those who apply for property preservation shall pay the preservation fees separately and provide guarantees.

Q4: How long does it take from filing a lawsuit to obtaining the final verdict?

Cases subject to summary procedures are generally concluded within three months, and cases subject to ordinary procedures are generally concluded within six months; the timeframes for cases involving appraisals, evaluations, or appeals will be extended accordingly, subject to the court's trial arrangements.

Q5: What should I do first?

First, check the specific wording of the deposit and penalty clauses in the contract to confirm whether the application of the deposit penalty is clearly stipulated; then verify whether the deposit has actually been paid and whether it exceeds 20% of the subject matter of the main contract; and finally calculate the actual benefits of the two options respectively.

The above content is based on the judicial practice in the Beijing area. The facts of individual cases and the jurisdiction of the court may affect the conclusions. Welcome to consult Henglu Law Firm for specific situations.

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. In case of disputes, please consult a practicing lawyer in time.