A deposit may be another way to ensure fulfillment of obligations. Most often it happens that the parties use the concept of "deposit", although in practice we are talking about an advance. So how is the deposit different from the advance? Let's try to find out.
What is the essence of the concept of "deposit"?
The definition of the deposit is established in paragraph 1 of Article 380 of the Civil Code of the Russian Federation. The article says that the deposit is considered the amount of money issued by one of the parties on account of future payments of this party, as evidence of the conclusion of the contract and ensuring the fulfillment of its conditions. This is what a deposit is.
Functions
It has three functions: payment, since the deposit is part of the amount that will be paid under the contract; evidence, since the deposit confirms the conclusion of the contract; security, because the transfer of a deposit is a security measure.
If we talk about the interim function that the deposit performs, then in case of non-fulfillment of the obligations provided by the deposit of the deposit, certain consequences arise, which are established by the Civil Code of the Russian Federation. The consequences depend on whose fault the obligations were not fulfilled. In the event that the obligations are not fulfilled through the fault of the person who gave the deposit, then he remains in full with the second party.
What is the difference from the advance payment, not everyone knows.
Double size
In the event that the terms of the contract are violated through the fault of the party that accepted the deposit, then it will be returned in half. In addition, the party that violated the provisions of the contract is obliged to pay the opposite party the damage caused, taking into account the amount of this deposit. In the event that the obligations are terminated before the start of their performance or due to the impossibility of performance, the amount of the deposit must be returned. The deposit agreement is made in writing, there are no other requirements in the law. The agreement may be executed in a separate document or form part of the main contract. In any case, such an agreement necessarily contains a reference to the essential terms of the contract, the security of which a deposit has been issued, and the amount constituting it.
Other information
These conditions are considered material, in addition to them, the agreement may contain other information:
- details of the parties;
- conditions under which the transfer of the deposit will be carried out;
- other information and obligations that interested parties wish to include in the agreement. How a deposit differs from an advance, everyone should know.
The transferred amount is considered a deposit if the parties initially had an understanding that all three functions would be performed. If there are doubts that at least one function was not provided for by the parties or the agreement was not drawn up in writing, then the amount will not be a deposit, but an advance.
How the deposit differs from the advance is interesting to many.
Advance differences
What is an advance? The Civil Code does not give a clear definition of this concept. In dictionaries, an advance is understood as advance payments of certain monetary amounts against future payments for goods, work or services supplied. In judicial practice, the advance is stated as follows: as well as in the case of a deposit, the advance is taken into account in future payments, that is, it also performs payment functions.But, unlike a deposit, an advance cannot fulfill a security function, therefore, regardless of the reasons for the default, the advance must be returned.
According to the Civil Code of the Russian Federation, an advance and a deposit are accepted against the upcoming payment. An advance is often called an advance payment. As for the evidentiary function, sometimes an advance can fulfill it, sometimes not. For example, when transferring funds to the payment account under a contract that has not yet been concluded. Such a situation, in contrast to the deposit, is quite possible. The deposit always ensures the performance of the evidentiary function, so either the main contract or the preliminary one must be concluded.
The security function for the deposit always exists, since the process of giving the deposit ensures the existence of a basic obligation. Advance payment does not have such a function, therefore, the party that made the advance may demand the return of the entire amount of the advance payment even in the event of unilateral termination of the contract through their own fault.
Here is what a deposit and advance.
What to choose?
After we find out how similar and how the deposit and advance are different, it can be noted that the choice is usually dictated by the specific conditions of the contract being concluded. In practical activities, advance payment is much more widespread than a deposit when concluding certain agreements:
- retail sales contract;
- supply agreement;
- contract;
- contract for the provision of services.
When is a deposit more commonly used?
The deposit is most often used when buying real estate and the delivery of large consignments. The deposit is considered a more effective way to ensure the fulfillment of contractual obligations. In case of violation of the fulfillment of obligations, the bona fide party has a chance to receive compensation for losses.
It is quite difficult to distinguish between the concept of a deposit and an advance.
Preliminary agreement
In 2015, federal law was amended to expand the range of obligations that a deposit can provide. Now the deposit can guarantee the fulfillment of the obligations of the main contract on those conditions that are provided for by the preliminary contract.
The preliminary contract assumes that the parties give obligations to conclude the main contract on those conditions that are specified in the preliminary. Previously, the issue of giving a deposit under a preliminary contract was not regulated by civil law, but was resolved in arbitration practice. There was no single use. Most often this was interpreted as follows: a deposit can ensure the fulfillment by the parties of monetary obligations under agreements concluded between them.
The difference between a deposit and an advance in civil law is clearly spelled out.
Transaction without payment function
In this regard, the arbitrations concluded that a preliminary contract cannot provide for a transaction that does not contain a payment function. Moreover, the deposit can provide only monetary obligations. A preliminary contract cannot be considered as such, since its consequence is only an obligation to conclude a basic contract in the future. Previously, lawyers were of the opinion that the deposit is not accepted as security under preliminary contracts, because the latter has no financial obligations, but later came to a different conclusion - the Civil Code does not prohibit the deposit of a security function under a preliminary contract. Now, such discrepancies have been eliminated and the possibility of providing the deposit of obligations to conclude the main contract on the conditions stipulated in the preliminary contract.
In some cases, the issues of applying both a deposit and an advance are resolved only through judicial practice. This may apply to forfeits, and liens, and sureties, etc.
We have carried out a comparative legal description of the deposit and advance, and we hope that you will not have any difficulties with delimiting concepts.