This article gives you information about earnest or deposit payments in Thai law, together with relevant laws and Supreme Court judgements for reference. It is easy to read and useful when you make sales and purchase contracts for goods.
What Does Earnest Mean?
There is no law defining what it means. But when summed up for easy understanding, it means something that is given to a contractual party as a security for the performance of the contract. Section 377 of the Civil and Commercial Code (CCC) stipulates that when entering into a contract if something is given in earnest, the earnest is deemed to be proof of the conclusion of the contract. It also serves as a guarantee that the contract will be fulfilled.
In Addition to More Understanding Of the Meaning of Earnest or Deposit Payment;
1. The Earnest is not an absolute presumption of law
It is not an absolute presumption that a contract has been made. The parties agree to enter into a written contract of sale made. The parties agree to enter into a written contract of sale. The parties agree to enter into a written contract of sale. The parties agree to enter into a written contract of sale. As long as it hasn’t been made. Even if an earnest has been given, as long as the contract has not occurred (Supreme Court Judgement No. (SJN) 881/2482).
2. The Earnest is a juristic act that has no form.
The earnest is a juristic act that has no form. It can be agreed upon verbally; however, it is an accessory contract; the completion of the earnest contract is subject to the principle contract, such as the lease contract (principle contract), which the law requires to be made in writing. The earnest (accessory contract) of the rental contract must be made in writing as well.
3. No law is required to have Earnest when making a contract.
There is no law stating that earnest money is required when entering into a contract. Any contract can be made without it.
4. Earnest must be given at the time of contract.
The earnest money is given at the time of the contract. What is given after the contract is not earnest (SJN. 513/2538). What is given must be the property that is sufficient for security for the performance of the contract; for example, the bank’s guarantee or letter of credit in the tender is not earnest, and when breaching the contract, it cannot be forfeited under CCC S 377. However, the bank may be forced to pay damages according to the bank’s guarantee or letter of credit under a provision of the contract. Likewise, a land title deed or a certificate of utilisation is just a certificate of entitlement and has no value in itself.
5. Name is not important.
If something is given when entering into a contract, it is in the form of an earnest. Even if you call it another name, it’s earnest. But if it is not, even if it is called an earnest, it is not an earnest. The law of the earnest is not applicable. For instance, in a contract to purchase the land The buyer pays a certain amount of money in advance. If the buyer breaches the contract, the seller cannot forfeit this money. Unless there is a provision in the contract allowing it to do so.
What To Do With Earnest or Deposit Payment?
The first note is that the Earnest Agreement is not an agreement concerning public order. The parties can agree to arrange it however they want. However, if there is no agreement about what to do with it, Section 378 of the CCC will be applied to three cases.
1. In The First Case
If the party who has given the earnest money complies with the contract, it has to be refunded or be a part of the payment under the contract. However, in the case of using earnest money to be a part of the payment, it must be the last payment. Because if it’s the first instalment, then it’s not a guarantee for the performance of the contract. It is not earnest. On top of this, during the contract, without the fault of either party, the party who has given Earnest has no right to ask for a refund.
2. In The Second Case
If the party who has given the earnest money fails to comply with the contract, payment of the debt becomes impossible because of any circumstances for which he or she is responsible, or there is a termination of the contract because of his or her default of the contract, it shall be forfeited.
It should be noted that if the amount of the earnest is too high, the court may reduce the amount of the forfeited amount as actual damage according to the Unfair Contract Terms ACT B.E. 2540 Section 7. However, if the damage is greater than the forfeited earnest money, the party who has received it has the right to claim and prove the actual damages in accordance with Sections 222 and 223 of the CCC.
3. In The Third Case
If the party who has received the earnest money neglects to pay or his or her performance of the contract becomes impossible because of any circumstances for which this party is liable, it shall be returned to the party who has given it. If the earnest is an amount of money, when refunding the deposit payment, the interest must be paid on top of the deposit payment amount according to the law from the date of default (SPN. 1131/2532). If the interest rate is not agreed upon, then the interest rate prescribed by law in the event of default shall be applied.
4. In the Last Case.
In the case of non-performance of the contract, neither party is liable, and Section 378 of the CCC does not specify what to do. However, SJN 149/2539 decided that the plaintiff sued the defendant for failing to deliver the timber under the purchase agreement. Request a refund of the earnest money plus interest. The defendant testified that the Ministry of Agriculture put an end to the defendant’s logging concession. The defendant’s debt becomes impossible because neither party is liable. The defendant was released from debt under Section 219 of the CCC. But when it was a reciprocal contract, the defendant had no right to receive payment in return. Therefore, the defendant must return the deposit payment to the plaintiff.
In conclusion, the earnest or deposit payment is one type of contract in Thai law. It is not only subject to the general condition of validity but also to the condition of validity itself. You may be interested in reading How to make contracts under Thai Law. If you have any questions, just feel free to contact us.
