In the process of buying and selling residential properties, the parties often place a deposit to ensure the transfer is in accordance with the agreement. In the event that one party fails to fulfill their committed obligations, they will be subject to a penalty on the deposit. Thus, if the transfer contract is voided, will there still be a penalty on the deposit?
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Is there a penalty deposit when the transfer contract is invalid? (Illustrative Photo)
According to the provisions of Clause 1, Article 328 of the Civil Code 2015, a deposit is an act in which the depositor delivers to the deposit receiver a sum of money or precious metals, gems, or other valuable items (collectively referred to as deposit property) within a certain period to ensure the conclusion or performance of the contract.
The deposit can result in three possible outcomes:
- In case the contract is concluded and performed, the deposit property shall be returned to the depositor or deducted to perform the payment obligation;- If the depositor refuses to conclude or perform the contract, the deposit property belongs to the deposit receiver;- If the deposit receiver refuses to conclude or perform the contract, they must return the deposit property to the depositor and pay an amount equivalent to the value of the deposit property, unless otherwise agreed.
Thus, the purpose of the parties when depositing may be to ensure the conclusion or performance of the contract, or both conclusion and performance of the contract, depending on the agreement between the parties. Accordingly:
- In case the parties deposit to ensure the conclusion or performance or both conclusion and performance of the contract but the contract cannot be performed due to invalidity. In this case, the party at fault for the invalid contract will be penalized.
- If the parties deposit only to ensure the conclusion of the contract. Additionally, the parties comply with the agreement that they have concluded a transfer contract. However, the contract is invalid, the parties do not incur rights and obligations, so the contract cannot be performed. In this case, the parties will not be penalized as the previous deposit agreement does not include the performance of the contract.
Therefore, when agreeing on a deposit, the parties need to clearly consider the deposit's guarantee for which obligations. Because if it only guarantees the obligation to conclude, then if the contract cannot be performed due to the fault of one party, that party will not be penalized.
Thuy Tram
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