What is not returned: deposit or deposit, which is more profitable?

Business lawyer > Civil law > What is not returned: deposit or deposit, which is more profitable

Modern practice of economic transactions, in particular when purchasing real estate or large movable property, involves the inclusion of a pledge or deposit in the contract. Many are confident that they are well versed in these terms and know the intricacies of using them, however, situations of fraud and deception of citizens are increasingly arising. So when is it more profitable to use one or another term and what is not returned - the deposit or the deposit?

Deposit: concept and essence of definition

Article 329 of the Civil Code of Russia lists measures to ensure the fulfillment of contractual obligations, among which are a pledge and a deposit.

Deposit, in accordance with Art. 380 of the Code in paragraph 1., is the amount of money transferred by the preliminary buyer to the preliminary seller to guarantee the fulfillment of the concluded contract.

The deposit is aimed at bringing the contract to completion - the party to whom the deposit was transferred has an incentive to continue cooperation, otherwise he needs to give the money to the buyer, and for the buyer the deposit is a reason not to disrupt the deal and comply with all the agreed points of the document.

○ What is a security deposit and a deposit for an apartment when renting.

Collateral and deposit when concluding a rental transaction are concepts that have significant differences.

• “The fulfillment of obligations can be ensured by a penalty, a pledge, retention of the debtor’s property, a surety, an independent guarantee, a deposit, a security deposit and other methods provided for by law or agreement (clause 1 of Article 329 of the Civil Code of the Russian Federation).”

As follows from this law, a deposit is a guarantee amount that can be used to pay off a debt in the event of its formation. For example, it can be used as payment for the last month of accommodation .

As for the deposit, these are financial resources in the amount established by the parties (usually equal to the monthly payment). This is a kind of insurance for the landlord, which will compensate for damage to his property if it occurs. The concept of a security deposit is not reflected in the legislation; it is equivalent to a security deposit.

• “A monetary obligation, including the obligation to compensate for losses or pay a penalty in the event of a violation of the contract, and an obligation arising on the grounds provided for in paragraph 2 of Article 1062 of this Code, by agreement of the parties, can be secured by the contribution of one of the parties in favor of the other party of a certain sum of money (security deposit). A security payment can be used to secure an obligation that will arise in the future.
• If circumstances stipulated by the contract occur, the amount of the security payment is counted towards the fulfillment of the corresponding obligation (clause 1 of Article 381.1).”

Functions of the deposit

A deposit is a more accessible and simple tool for ordinary people, which does not require complex contract texts and special conditions. The bottom line is that one person gives money to another to prove the seriousness of his intentions - because he will lose this money if he changes his mind about completing the transaction. But this is not the only task of the deposit.

It has 3 functions:

• securing a future transaction - after transferring the deposit, the seller can be calm and remove the property from sale, because the deposit ensures a high probability of purchase by this counterparty
• confirmation of the conclusion of the agreement - the agreement usually contains a clause stating that it is valid from the moment of transfer of the deposit, i.e. transfer of the deposit is perceived as the conclusion of the main transaction
• the deposit is the buyer’s first payment - being a small part of the transaction cost, the deposit does not increase the buyer’s expenses, but is included in them, for example, if the transaction costs 2,000,000 rubles, and the deposit is 200,000, then the buyer will have to pay an additional 1,800,000 rubles, and not the entire transaction amount.

A deposit is a profitable and convenient mechanism for transactions involving the sale of expensive and large goods.

Definition of collateral

Pledge, according to Article 334 of the Code, is property or funds that the debtor transfers to the creditor, and in the event of failure to fulfill the agreement, the creditor has the right to dispose of the pledge at his own discretion.

The pledge has only a guarantee function - the lender will not suffer a loss in the event of termination of the transaction or failure to fulfill its terms.

Differences between collateral and earnest money

There are a number of differences between the concepts:

1. Item. A pledge is a guarantee not only in monetary terms, but also in the form of any tangible and intangible assets (for example, property rights). The deposit can only be money.
2. Transaction form. The transfer of the deposit in accordance with Article 320 of the Civil Code of Russia is formalized in writing as part of the main agreement or by a separate agreement. The pledge must also be put in writing, and in some cases must be certified by a notary. Such cases include situations listed in the legislation. With the exception of them, the parties independently decide whether to have the agreement certified by a notary, which is stated in the main agreement.
3. Size. The deposit is a small fraction of the transaction cost, 1/5 or 1/10. The deposit cannot exceed the amount of the contract, because it is included in it, but it can be equal to it. Any property can be used as collateral, including real estate whose value exceeds the value of the main contract.
4. Violation of the main contract. In the case of a pledge, the pledgee sells the property in his possession and disposes of the proceeds as follows - he keeps a portion of the cost of the main transaction for himself, and returns the rest to the pledgor. In the case of a deposit, different rules apply - it all depends on who broke the deal. If the holder of the deposit, then he returns the amount to the buyer twice. If the violator is the buyer, then the money remains with the seller and becomes his property without the right to demand return by the seller.

It is not necessary to formalize the transfer of the deposit in the form of a separate agreement; it can be specified in the letter of intent.

In no case should you transfer a deposit without a written agreement simply against a receipt - it will be difficult to prove that it was a deposit, the court may regard such a transfer as an advance payment, and the consequences of an advance payment differ from making a deposit.

In the case of a pledge, in practice, a full-fledged agreement is concluded.

A pledge transaction is more serious, since it involves a larger property or amount than when transferring a deposit.

Be careful when signing documents on transfer of advance payment!

When signing the agreement to transfer the advance to the seller, make sure that this document contains the following information:

• the value of the property you intend to buy. This clause will not have any effect on the return of the advance payment, but will insure you against a sudden price increase at the initiative of the seller;
• the amount you transfer as an advance;
• detailed description of the property;
• the time frame within which the transaction must be completed.

In order to minimize all possible risks associated with the preliminary agreement, it must be signed by both parties.
In addition, it is better to entrust the drafting of the document to an experienced lawyer, who must be present at the procedure for signing the agreement. This is the only way you can count on the case for the return of the advance payment being considered in court, as well as on its successful outcome for you. Share Share Tweet Class

Why do you need to know this?

Anyone who is unaware of the intricacies of using deposits and collateral when concluding a transaction is at risk of being deceived. There are many ways to deprive a person of money by using a deposit agreement or a pledge agreement.

Here are some common schemes:

1. The fraudster rents an apartment for a while—several months. Makes a copy of the certificate of ownership or an extract of ownership, prepares a fake power of attorney to represent the interests of the owner and sells the apartment under an agreement with the transfer of a deposit. The potential buyer gives the scammer money, and he disappears. This small type of fraud is much worse; if the fraudster sells the rented apartment, then the buyer will lose a large amount of money.
2. The fraudster operates with a general power of attorney from the owner - received a long time ago or for other purposes, or even fake. After receiving the deposit, such a representative disappears and does not answer calls.
3. Sometimes scammers use the method of favorable prices and short deadlines. They assure the buyer that the apartment (usually owned by a fraudster) is being sold urgently and at a low price, that several people are vying for it, and the contract will be drawn up with the one who gives the deposit before others. After receiving the deposit, an agreement is concluded with unrealistically short terms and conditions. The buyer does not have time to fulfill them and becomes the culprit for breaking the contract; as a result, the deposit legally remains with the fraudster.
4. A popular scheme is the distribution of lending services to the population. The debtor is asked to secure the transaction with real estate collateral. He mortgages his apartment/house/land and receives a loan that is less than the value of the real estate. Then it turns out that the debtor was given not a collateral agreement to sign, but a purchase and sale agreement, and he is left without housing.
5. The traditional scheme of deception using collateral is to gain the trust of the home owner, after some time tell them about your needs and convince the owner to provide housing space as collateral to obtain a loan. The creditor is a figurehead. After the transaction, the fulfillment of obligations by the parties is demonstrated for a certain time, and then the debtor faces insurmountable obstacles and is unable to repay the loan. The creditor sues to recover his money through the mortgaged property. Enforcement proceedings are initiated, the apartment is sold at auction. As a rule, the sales organizer is also a front company; the apartment is sold cheaply. As a result, the owner loses his home, and may still be in debt to the lender.
6. We often see advertisements of tempting offers for loans and loans without complex procedures. In fact, you need to be careful with such offers. A home owner turns to such a company, receives a loan secured by an apartment/house/land, lenders convince him to enter into not a loan agreement or a collateral agreement, but a purchase and sale agreement, arguing that this practice is widespread and guarantees the company’s investors a return of money.

To be convincing, creditors draw up a reverse purchase and sale agreement for the property with a trusted person of the owner - a relative or friend. With the same argument, creditors convince him to sign for the receipt of money for the sold home and give power of attorney to creditors to register ownership. Then the owner repays the loan, as agreed, but cannot return the property, since he is not its owner. It is difficult to recognize such a transaction as invalid, since all the conditions are present.

To protect yourself from such schemes and protect loved ones from them, it is recommended to draw up an agreement or contract with the support of a specialist - a lawyer or a notary, and try to make inquiries about the counterparty and other persons involved in the transaction.

Advance with return

Realtors and sales consultants themselves advise the buyer, to be sure that the product he likes will not “go away,” to conclude a preliminary purchase and sale agreement and pay a certain amount as a deposit. What if in the end the purchase did not take place? Problems with the return of deposits, according to judicial statistics, are a very common topic of controversy.

Therefore, the explanation of the Judicial Collegium for Civil Cases of the Supreme Court of the Russian Federation about who, to whom, when and on the basis of what laws should return the deposit for a failed acquisition can help many current and future buyers.

In our case, in 2021, a resident of the Moscow region approached the city court with a claim against a certain citizen for the return of money. The lawsuit calls the amount—almost $162,000—“unjust enrichment.” In addition, the plaintiff also asked for interest on the use of this money for seven years. Here it turned out to be more than 82 thousand dollars.

The history of the claim is as follows. One citizen decided to buy part of a residential building from its owner. The seller and buyer entered into a preliminary agreement. This agreement stated that citizens assumed the obligation to conclude a full-fledged purchase and sale agreement within a year from the date of signing the preliminary agreement. “In fulfillment of its obligations,” the plaintiff paid the defendant almost 162 thousand dollars. But the purchase of the home never took place, the preliminary agreement was terminated, but the seller did not return the deposit.

In the city court, the owner of the unsold property explained his refusal to return the money simply: the statute of limitations (three years) for such a claim had passed. In general, earlier it was necessary to demand money, but now time is lost. But the court satisfied the claims of the failed buyer. The regional court agreed with this decision, although it reduced the amount of interest collected by almost half.

The defendant did not agree with this decision and went further and higher - to the Supreme Court of the Russian Federation. There, the case was requested, studied and all decisions taken on the dispute about the return of the deposit were canceled. According to the Supreme Court, local courts “committed violations.”

From the case materials it is clear that the parties signed the preliminary purchase and sale agreement back in 2010. And during 2011 they had to sign the main agreement. Part of the house for sale was valued at $192,000. According to the preliminary agreement, the buyer paid the equivalent of 162 thousand dollars.

The first instance decided: since the obligations under the preliminary agreement were not fulfilled and the main agreement was never signed, then the deposit must be returned. The appeal, reducing the interest for “using someone else’s money,” considered: since the citizen filed a claim in 2016, he should only be refunded the interest for the previous three years.

The Judicial Collegium for Civil Cases of the Supreme Court of the Russian Federation stated that it does not agree with such decisions.

And that's why. According to the Civil Code (Article 1102), if a person, without legal acts or transactions, acquired property at the expense of another person, who was called the victim, then this property was “unreasonably acquired.” And it must be returned. From the case materials it is clear that the money paid under the preliminary agreement is a deposit.

Article 308 of the Civil Code states that the deposit “is recognized as a sum of money given by one of the contracting parties in payment of payments due to it under the contract and as evidence of the conclusion of the contract to secure its execution.”

The next article of the Civil Code (381) states that if obligations are terminated before the start of execution of the contract by agreement of the parties or if it is impossible to fulfill (Article 416), the deposit must be returned. But if the party who gave the deposit is responsible for the failure to fulfill the contract, then it remains with the one to whom it was given. But in the case where the party who received the deposit is responsible for failure to fulfill the contract, she is obliged to return it in double amount. This is also stated in the agreement that the parties signed.

If the transaction does not take place due to the fault of the buyer, then the deposit will not be returned to him

According to the Supreme Court of the Russian Federation, local courts, when starting to consider the dispute, had to establish who is responsible for the fact that the main purchase and sale agreement was not concluded within the agreed period. For some reason, neither the city nor the regional courts did this.

In addition, the courts of first and appellate instances, in violation of the law, did not evaluate the seller’s arguments and evidence that the main contract was not concluded due to the buyer’s fault. Back in 2011, the home seller sent the buyer a notice that it was necessary to conclude the main contract. But the buyer not only did not react to this, he tried to terminate the preliminary agreement.

As a result, the case regarding the return of the deposit will be reconsidered.

What is not returned - the deposit or the deposit?

Depending on the conditions specified in the agreement and preliminary contract, as well as on who failed to fulfill their obligations and caused the termination of the transaction, both the deposit and the deposit may not be returned.

The deposit is not returned to the buyer if he has violated or terminated cooperation under the current agreement. For example, citizen Ponomarev entered into a rental agreement for a banquet hall for a wedding celebration on a certain date and made a deposit of 35,000 rubles. After some time, the wedding had to be cancelled. Ponomarev understands that he has no right to demand the money back, since the deal ended because of him.

If the management of the banquet hall had been the reason for the termination of the deal, for example, because of a fire the hall would not be ready on the specified date, then Ponomarev would have been returned not just the deposit, but its double amount.

The deposit is not returned if the pledgor does not fulfill his obligations under the main agreement. For example, Ponomarev bought a car in installments from a friend with an obligation to pay 45,000 rubles monthly for 11 months. As collateral, he gave the car seller his old car with an estimated value of 190,000 rubles. If Ponomarev does not fulfill his obligations to pay monthly amounts, the mortgagee has the right to sell his old car and distribute the proceeds in his favor in the amount of Ponomarev’s debt.

And if Ponomarev paid money regularly all year, the old car will be returned to him, and he will also become the full owner of the new car.

From the examples it is clear that the deposit is used in cases where the seller wants to protect himself from risks, and the deposit is used as the first step in the further implementation of the transaction.

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○ What to do if the landlord is hiding.

If the owner of the apartment simply ignores the demand to return the due amount and does not get in touch, you need to act as follows:

• Draw up a deed of transfer unilaterally and send it to the place of registration by registered mail.
• Draw up a statement of claim, attaching a copy of the act and the shipping receipt.
• Provide the court with evidence of attempts to contact the owner of the apartment (testimonies of witnesses, sent messages on the phone).

If the landlord hides, this may also be regarded by the court as unlawful actions towards the tenant, which increases the likelihood of the latter winning. It is important to take into account that the statute of limitations in this case is also three years, so it is necessary to initiate litigation before the expiration of the specified period.