Deposit clause or contract

It is a common situation that we all know that when two people or companies sign a contract, one of them gives an amount of money to the other as a deposit. We all have in mind the home purchase contract, where when signing the reservation, the purchase option or the contract itself, the buyer gives the seller an amount that can have different purposes and consequences for both parties.

The money may be intended as a down payment, i.e. it may be given on account of the price. They may also be given as a pledge, so that if the party who gives it eventually desists from buying the property, he or she will lose the pledge. It is even possible that such an amount is given as advance compensation, so that the seller can compensate himself for the damage he would suffer if the buyer changed his mind about the purchase, saving him from claiming it in court.

All of this is regulated both by our Civil Code, which originated in Ancient Roman law, and by the practice and custom of centuries of commercial exchanges between persons.

Although the contract or deposit clause may seem to be a mere accessory of no importance to the main contract of sale, it is of the utmost importance, before signing, to know which of the three existing types we are dealing with. The consequences for our assets in the event of a truncated sale, whether we are buyers or sellers in the specific business, can be very diverse.

In addition, they can take various forms. As a deposit contract proper, as a deposit clause in the contract of sale, as a clause in a reservation or deposit document or, in short, in any form imaginable and admissible in law.

Let us now analyse the three different types of arras that exist in our legal system.

On the one hand, we have the penitential arras. These are regulated in art. 1454 of the Civil Code, within the regulations relating to the nature and form of the contract of sale, which provides: “.If a deposit or down payment has been made in the contract of purchase and sale, the contract may be rescinded and the buyer may agree to forfeit them, or the seller may agree to return them in duplicate”. We would therefore be dealing with a kind of pledge, which the buyer gives to the seller, so that he can dissociate himself from the contract by agreeing to forfeit the pledge. The seller, on the other hand, may do the same, provided that he returns to the buyer double the amount received. Its purpose is none other than to allow the termination of the contract of sale without just cause. In other words, neither party will have to justify any departure from the contract. Nor can one party compel the other to perform.

We may also encounter criminal arras flames. These are nothing more than the delivery of a penalty for non-compliance in advance. They are therefore regulated in the arts. 1.152 a 1155 del Código Civilwhich deal with penalty clauses in general. It provides for the art. 1.152 which: In obligations with penalty clauses, the penalty shall replace compensation for damages and interest in the event of non-performance, unless otherwise agreed. Thus, if one of the parties withdraws from the contract of sale, the other party will not be able to claim compensation for the damages caused, as this is replaced by the penalty fixed in the contract as a deposit. Thus, if one of the parties withdraws from the contract of sale, the other party will not be able to claim compensation for the damages caused, as this is replaced by the penalty fixed in the contract as a deposit.

Finally, we would have the confirmatory arras flames, or signal itself. Its sole purpose is to advance part of the price as a sign of willingness to perform, so that the contract of sale begins to be performed. Its existence implies nothing more than that. In other words, if either of the parties decides not to finally formalise the sale, the other party may demand, alternatively, either the fulfilment of the sale or compensation for the damages caused, which must be previously accredited and quantified.

The type of deposit we are interested in for our contract or that of our clients will depend on several factors, so it is necessary to analyse the specific case. In this sense, we should not rely on the fact that the contract contains one or another denomination of earnest money, whether they are penal, penitential or confirmatory; we will have to analyse the specific clause to discover, by the definition of earnest money or by the article of the Civil Code cited, what type of earnest money we are dealing with in particular.

In any case, it should not be forgotten that, in the event of doubt or lack of definition in the contract, the Courts and Tribunals will understand that these are penitential deposits of art. 1.454 of the Civil Code. This is a doctrine that has been changing over the years, as it was previously understood in the light of the different case law that, in the absence of a definition of the earnest money in the contract, it would be considered confirmatory, as a down payment on account of the final price.

The conclusion to be drawn from all this gibberish is this: To avoid unexpected surprises, consult a lawyer you trust before signing any reservation, deposit or purchase document. He will be able to guide you as to what you are signing and to what extent the type of signal provided for in the contract is in your best interests.