Deposit and liquidated damages can be agreed at the same time, but they cannot be applied at the same time in case of breach of contract or inability to continue to perform the contract. Only one party can choose to apply the deposit or liquidated damages. It should be noted that the choice of applying deposit or liquidated damages should be made by the party who has not breached the contract, and the defaulting party has no choice.

1. What's the difference between deposit and liquidated damages?

Security deposit refers to the money deposited by one or both parties in the other party or a third party to ensure the performance of the contract. This concept is widely used, such as contract bond, performance bond in bidding, bond in futures trading, and even bond in bail pending trial.

Liquidated damages refer to the money paid in advance by the parties through negotiation after the breach of contract, which has nothing to do with performance. Although the agreement of liquidated damages is freely agreed by the parties, this freedom is not absolute but limited.

1. If one party breaches the contract, it shall pay liquidated damages to the observant party, and if actual losses are caused, it shall also compensate the party who has suffered losses, but only to the extent of actual losses, the other party may claim to terminate the contract.

2. Performance bond and liquidated damages can generally be used in the contract. However, the performance bond is not suitable for use in some contracts and is mandatory. If the contract is valid and Party B breaches the contract, Party A may confiscate Party B's performance bond and require Party B to pay liquidated damages separately.

Legal basis:

Article 587 of the Civil Code: If the debtor performs the debt, the deposit shall be used as the price or recovered. If the party paying the deposit fails to perform the debt or the performance of the debt is not in conformity with the agreement, thus the purpose of the contract cannot be achieved, it has no right to request the return of the deposit; If the party receiving the deposit fails to perform the debt or the performance of the debt does not conform to the agreement, so that the purpose of the contract cannot be achieved, the deposit shall be returned twice.

Article 588 Where the parties have agreed on both liquidated damages and deposit, if one party breaches the contract, the other party may choose to apply the liquidated damages or deposit clause. If the deposit is not enough to make up for the losses caused by one party's breach of contract, the other party may demand compensation for the losses exceeding the deposit amount.