THE DEPOSIT CONTRACT CONDITIONED ON FINANCING

(comment to the Judgment of the Court of Barcelona No. 55/2023 of January 18, 2023). 

The facts are as follows. A foundation buys Doña Camila - in fact it is an intermediary who had probably bought the apartment from Doña Camila - an apartment for €99.000. On May 14, 2018, pay €300 as a reservation, on May 17 sign some deposits in accordance with article 1454 of the CC of €10.000. It is set for full payment of the price and the date for deed: September 14, 2018. In the deposit they establish a resolutory condition. If the buyer - who is going to request financing - does not obtain it, he has the power to request resolution. 

The fact is that the Foundation does not obtain financing and Ms. Camila keeps the signal because she understands that there is a breach of the earnest money contract as of September 14, 2018. This is a very typical case. 

The lawsuit contains a certificate from Banco de Santander from 2019, saying that the Foundation requested financing for €100.000 in May 2018 but this was denied because the Bank considered the applicant's lack of solvency. 

The Foundation demands the return of the €10.300 delivered in concept of reserve and deposit plus legal interest increased by two points. The defendant Camila alleges that she was not informed that the Foundation had no funding, and that by not appearing in the deed on September 14, 2018, she understands that a unilateral withdrawal occurred with the consequence - in her logical opinion - of loss of the deposits 

The Judge of First Instance agrees with the Foundation in everything and imposes the costs on the defendant. In an appeal, the Court ratifies the first instance ruling and also imposes costs. 

Comments:

  1. It is striking that the Article 1454 in the contract, and not the article 621-54 of the CCCat. It was not alleged, but it is clear that there is a problem of law applicable to the contract. The applicable law is the CC of Catalonia, not the Spanish CC. This may seem unimportant, but it is not because Catalan regulations provide for another regime. However, the sentences apply the resolutory condition. 
  2. According to the agreed resolutive condition, the lack of financing determines that the buyer can terminate the contract and does so. This mechanism is the applicable one and not the deposit clause. Where is the difference? The difference is that the penitential deposit clause authorizes a resolution without condition. That is, it is an exception to the principle that contracts bind the parties. With a deposit clause one can withdraw from the contract, but - of course - with the penalty of lose the deposits given.

Informative annex

La resolutory condition in a earnest money contract It is a clause that establishes the conditions under which the contract can be terminated or annulled by any of the parties involved. In the context of earnest money contracts, which are preliminary agreements in the purchase and sale of goods (usually real estate), this condition allows the parties to withdraw from the purchase or sale commitment under certain previously agreed circumstances, which leads to the return of the deposit or deposit delivered, or the payment of a penalty, as stipulated in the contract.

The Earnest money is an advance payment of the total sale price, and serve as a guarantee that the buyer intends to proceed with the purchase, and the seller with the sale. Depending on the type of deposit agreed upon (confirmatory, criminal or penitential), the resolutory condition will have different implications in the event of non-compliance:

La resolutory conditionTherefore, it is a key tool within the earnest money contract that defines the consequences of not going ahead with the agreed purchase or sale, offering a negotiated and regulated exit route for both parties in the event that one of them decides not to conclude with the initial purchase-sale agreement. This type of clause provides security and clarity in the transaction, establishing in advance the penalties or steps to follow in the event of non-compliance with the contract.