Earnest Deposit Money

Earnest or Deposit Payment in Thai Law

This article is talking about Earnest or Deposit Payment with law and supreme court judgement for reference. But it is easy to read and useful in case you are interested.  

What Does Earnest Mean?

There is no law defining what it means. But when summing up for easy understanding that it means something that is given to a contractual party as a security for the performance of the contract. Civil and Commercial Code (CCC), Section 377 stipulates that when entering into a contract If something is given as an Earnest, the earnest is deemed to be proof of the conclusion of the contract. It also serves as a security that the contract shall be performed.

In Addition for More Understanding About Meaning of Earnest or Deposit Payment That;

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 contract of sale by a written contract. 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 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), 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 required to have Earnest when making a contract.

There is no law stating that Earnest 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 is given at the time of the contract. What is given after the contract is not an Earnest (SJN. 513/2538). What is given must be property that is sufficient for security the performance of the contract, for example, the bank’s guarantee or letter of credit in the tender is not an Earnest, when breaching of contract it cannot be forfeited under CCC. S 377. However, the bank may be forced for damages according to the bank’s guarantee or letter of credit under a provision of the contract. Likewise, the land title deed or a certificate of utilization is just a certificate of entitlement, no value in itself.

5. Name is not important.

If something is given when entering into a contract is in the form of an Earnest. Even if you call it another name, it’s an 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, a contract to purchase the land. The buyer makes a certain amount of money in advance. If the buyer breaches the contract The seller cannot forfeit this money. Unless there is a provision of contract allowing to do so. 

What To Do With Earnest or Deposit Payment?

The first note is the Earnest Agreement is not an agreement concerning public order. The parties can agree to arrange it  whatever they want. However, if there is no agreement about what to do with it. Section 378 of CCC will be applied for 3 cases.

1. In The First Case

If the party who has given the Earnest complies with the contract, it has to be refunded or be a part of the payment under the contract. However, in case of using the earnest to be a part of the payment, it must be the last payment. Because if it’s the first installment, then it’s not a guarantee for the performance of the contract. It is not Earnest. Oln top of this, during the contract without any fault of both parties, the party who has given Earnest has no right to ask for the refund.

2. In The Second Case

If the party who has given the Earnest failed to comply with the contract or payment of debt becomes impossible because of any circumstances for which his/her responsibility or there is a termination of the contract because of his/her default of 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 The party who has received it has the right to claim and prove the actual damages in accordance with, Section 222 and Section 223 of CCC.

3. In The Third Case

If the party who has received the Earnest neglects to pay or his/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, then the interest rate prescribed by law in the event of default shall be applied. 

4. In Last Case. 

In the case of non-performance of the contract is not liable by either party, Section 378 of 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 plus interest. Defendant testified that The Ministry of Agriculture gave the defendant’s logging concession an end. The debt of the defendant becomes impossible because neither party is liable. Defendant was released from debt under the Section 219 of CCC. But when it was a reciprocal contract The defendant has 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 subject to the condition of validity itself. you may be interested to read How to make contracts under Thai Law?. If you have any questions, just feel free to contact us.

Article by;
Frederic Retif, Master in Business law, French Lawyer and Thai Legal Advisor.
And Nuansnit Chuntawong, Master in Laws, Attorney at Law and  Notary Services Attorney.