[Direct answer]In the Beijing area, the penalty for breach of contract and the deposit cannot be used concurrently. According to Article 588 of the Civil Code of the People's Republic of China (effective January 1, 2021), if the parties have agreed on both a penalty for breach of contract and a deposit, when one party breaches the contract, the other party may only choose to apply either the penalty for breach of contract or the deposit clause, and claim one of the two; if the deposit is insufficient to compensate for the losses caused by the breach of contract by one party, the party in compliance with the contract may also request compensation for the losses exceeding the amount of the deposit. When making a choice, it is necessary to compare the amounts of the two and the difficulty of providing evidence: the penalty for breach of contract does not require proof of losses, but the amount may be limited; while the penalty for breach of contract requires verification of actual losses, and an excessive amount may be reduced. It is recommended to first check the contract terms, estimate the amounts that can be obtained through the two approaches, and then choose the more advantageous one to claim. If necessary, consult a lawyer to design a solution. For more details, please refer to the following link:Business and contract dispute services for enterprises.

I. Problem Background and Typical Scenarios

It is very common for commercial contracts to stipulate both the deposit and the breach of contract penalty simultaneously: housing purchase contracts stipulate both the deposit and the breach of contract penalty based on a certain percentage of the total price; equipment procurement contracts stipulate the deposit and set a separate breach of contract penalty for late payment. After the breach of contract occurs, the party in compliance often wants to "take two measures at once", that is, confiscate the deposit and demand the breach of contract penalty; while the breaching party claims that only one of them can be chosen. There are also contracts that only stipulate one kind of remedy, while the other party later claims another one, leading to a dispute over the basis of the clause. Such disputes frequently arise in sales and lease cases handled by Beijing courts, and the adjudication rules have become relatively uniform. For housing transactions, you can refer to the relevant provisions.Real estate sales and construction project services.

II. Key points of contention

There are three key points of contention. Firstly, the applicable conditions of the "choose one rule": only when the contract stipulates both the penalty and the deposit can the "choose one" rule be applied; if only one of them is stipulated, the party cannot claim for the unstipulated remedies, which is also a common reason for the rejection of the penalty claim. Secondly, the ownership of the right of choice and the timing of its exercise: the right of choice belongs to the party in breach of contract, and it should generally be specified in the lawsuit or arbitration request. Any change in the claim during the proceedings is subject to the constraints of the defense and evidence presentation, which carries certain risks. Thirdly, the backstop for loss compensation: if the loss cannot be compensated even after choosing the deposit, the party can continue to claim for the difference; if choosing the penalty, the party will face the risk of having the amount reduced to an excessive level. The court tends to focus on the contract text and combine it with the evidence of losses to determine the final amount, in order to prevent double compensation.

III. Professional analysis by Henglue Law Firm

Take the online service contract dispute handled by Henglue Law Firm as an example: On November 18, 2021, Wang Li signed the "Online Information Service Contract" and the "Technical Service Contract" with a certain company, with a total contract price of 110,500 yuan. Wang Li paid a 50,000 yuan equipment deposit as agreed. During the performance of the contract, the two parties agreed to terminate the contract, but the company failed to refund the deposit as promised. Wang Li sued to demand the return of 34,433 yuan in service fees, 3,000 yuan in attorney's fees, and interest. The company counter-sued, claiming that Wang Li's failure to pay the remaining 60,500 yuan constituted a breach of contract and sought 33,150 yuan in breach of contract damages. The first-instance court determined that the parties had confirmed the refund arrangements through WeChat and the stamped refund application form, and that the contract did not contain a breach of contract penalty clause. The court ordered the company to refund the deposit and dismissed all counter-claims. The company appealed, and Xue Shuhua, a lawyer from Beijing Henglue Law Firm, represented Wang Li in the second-instance trial. The complete evidence chain formed by the contract equipment details, the stamped refund application form, and WeChat records was presented in court. The second-instance court dismissed the appeal and upheld the original judgment. This case illustrates that claims for breach of contract penalties must be based on contract provisions. Where no breach of contract penalty is specified, rights can only be claimed based on deposit or advance payment clauses or statutory compensation rules, and cannot be claimed arbitrarily. This case was handled by Beijing Henglue Law Firm.Xue SuhuaThe attorney (practice license number: 11101201211769926, subject to the document issued by the judicial administrative organ) acts as the agent.

IV. Practical suggestions and legal basis

The legal basis is Article 586 of the Civil Code of the People's Republic of China (effective January 1, 2021) (deposit guarantee and penalties, with a cap of 20%), Article 585 (liquidated damages and their adjustment), and Article 588 (applicability of either liquidated damages or deposits, and the right to continue claiming damages if the deposit is insufficient to cover losses). Practical advice: When signing a contract, clearly stipulate the applicable relationship between deposits and liquidated damages to avoid conflicting or overlapping provisions; after a breach of contract occurs, first calculate the recoverable amount and the cost of providing evidence under the two approaches, and then choose one to claim; for those opting for deposit penalties, pay attention to the cap and the conditions for double repayment; for those claiming liquidated damages or compensation for losses, retain evidence of costs and price differences. Enterprises can refer to this for contract management purposes.Business and contract dispute services for enterprisesImprove the template.

5. Henglue Law Firm's Reminder

The "rule of choice" does not mean that you can only receive one form of compensation. If you choose the penalty clause, you can continue to claim for the insufficient part of the loss; if you choose the deposit clause, you can claim for the losses exceeding the amount of the deposit separately. The key is to calculate the accounts clearly and choose the right path. Before making a claim, check whether the contract contains both types of clauses to prevent the claim from being rejected for lack of evidence. There are risks in changing requests during the process, so it is advisable to determine the strategy at the time of filing the case. For large-scale transaction disputes involving multiple responsibilities, you can refer to the relevant provisions for guidance.Special services and other case servicesOrganize the overall plan. If you're not sure, it's better to entrust a lawyer to compare the options before taking action, so as to avoid losing compensation opportunities due to incorrect strategies.

VI. Frequently Asked Questions

Q1: If a party simultaneously claims both the breach of contract penalty and the double deposit, will the court support this?

Generally, they are not supported simultaneously. According to Article 588 of the Civil Code, if both a penalty for breach of contract and a deposit are stipulated, the other party can only choose one to apply when one party breaches the contract. If both are claimed at the same time, the court will usually require the party to choose one or only support one of them. If the deposit is chosen but still cannot make up for the losses, the party can continue to claim for the losses exceeding the amount of the deposit; if the penalty for breach of contract is chosen, the amount will be subject to actual loss verification, and the excessive part may be reduced. Before suing, the party should estimate the obtainable amount and the difficulty of providing evidence for the two options, and then determine the request.

Q2: What evidence should be prepared for such cases?

The core evidence includes: the contract text (proving the simultaneous agreement on the breach of contract penalty and the deposit and specific standards), the deposit payment receipts (transfer records, receipts), evidence of the facts of breach of contract (records of delayed delivery, refusal to perform, and unqualified quality), evidence of losses (procurement costs, resale price differences, losses from work stoppages, and costs of alternative transactions), and records of reminders and the other party's responses. For those claiming double repayment of the deposit, it is also necessary to prove that the recipient breached the contract; for those claiming breach of contract penalties, it is necessary to prepare materials comparing the losses to prevent the risk of having the amount reduced. The organization of the evidence should correspond to the chosen approach one by one.

Q3: Is the cost of litigating for breach of contract penalties and deposits high?

The litigation fees are accumulated in stages according to the amount of the claim, and are borne by the losing party or shared proportionally; the amount of the subject matter of the claim selected is usually lower than the sum of the two, and the fees are relatively controllable. Lawyer's fees are calculated according to the complexity of the case, on an hourly basis, or negotiated proportionally, subject to the terms of the contract. It is recommended that before suing, the lawyer estimate the difference in the amount and cost that can be obtained from the two paths to avoid initiating high-cost procedures for small differences; if the facts are clear and the amount is not large, you can first negotiate or apply for mediation, and if the mediation fails, then sue.

Q4: How long will it take to reach a conclusion in a dispute over breach of contract and deposit?

Cases subject to summary procedures are generally concluded within three months, and cases subject to ordinary procedures are generally concluded within six months; arbitration cases are usually adjudicated within several months according to the arbitration rules. If the dispute involves loss calculation or determination of the nature of the funds, the period will be extended accordingly. If one party appeals, the second-instance trial is generally concluded within three months. If the other party refuses to perform after the judgment or award takes effect, it is necessary to apply for enforcement, and the time of recovery of the funds depends on the status of the property. Overall, it usually takes several months to a year from the initiation of the procedure to the recovery of the funds.

Q5: If the other party breaches the contract, how should I specifically choose to assert my rights?

The first step is to check the contract item by item to confirm whether the deposit and penalty clauses exist and their respective amounts; the second step is to calculate and compare: the amount that can be obtained from the deposit penalty (including double refund) with the amount that can be obtained from the penalty clause and the difference with the losses; the third step is to assess the difficulty of providing evidence and the other party's ability to pay, and then determine the request; the fourth step is to claim compensation for the insufficient part together to maximize the benefits. If you are unsure about the strategy, it is recommended to consult a lawyer before filing a lawsuit to avoid making mistakes in the process or having your request passively changed during the procedure.

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

If you are currently facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the relevant evidence, to avoid missing the statutory time limits.Corporate commercial legal services·Attorney Xiong Binrong·Beijing Henglue 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.