Realizing their intentions to ensure the implementation of the agreement by paying part of the funds in the form of a deposit or advance, the buyer is often unaware of their nature, which leads to misunderstandings between the parties and further makes it impossible to resolve the issue of refund in full, for example.

So what is the difference between an advance and a deposit?

An advance is a certain amount of money (prepayment) that is transferred by the buyer to the seller and which is included in the total price of the goods. That is, the buyer pays the price of the goods in several parts: the first part (advance) is paid before he receives the goods, the other part - after.

The advance is not entrusted with the function of securing the obligations assumed by the parties. Therefore, in the event of termination of the contract by agreement of the parties or due to non-performance by one of the parties to the contract of its obligations, the amount paid as an advance must be returned to the buyer. For example, if the seller refuses to transfer the goods, the buyer has the right to demand a refund of the advance in full.

The deposit is a sum of money or movable property paid by the buyer (consumer) to the seller (creditor) at the expense of due payments to be paid by him under the contract, in order to confirm the obligation and to ensure its implementation. In case of breach of contract by the buyer, the deposit remains with the seller. However, if the breach of obligation occurred through the fault of the seller, he is obliged to return the deposit to the buyer, in addition, must reimburse the other party for losses in excess of the amount (value) of the deposit - ie, pay an additional amount of the deposit.

Therefore, the parties who want the prepayment under the contract to be made in the form of a deposit, must comply with the following legal requirements:

1) the parties must directly state in the contract that the funds paid by the buyer for future payments are a deposit;

2) a contract containing provisions on a deposit must be concluded in writing, and such provisions may be included in the main contract (purchase agreement), or the parties may enter into a separate written contract (deposit agreement).

3) an agreement must be concluded between the parties, which provides for the obligations of the parties (payment by the buyer and transfer of property by the seller). That is, an agreement of intent or a preliminary agreement (an agreement under which the parties undertake to enter into a principal agreement in the future) cannot contain provisions on a deposit.

In the event that the parties have only agreed to enter into an agreement (entered into a preliminary agreement), but have not executed the main agreement, the payments paid for the performance of the agreement are an advance, not a deposit.

What should the document on the transfer of funds in the deposit contain?

- data on the person who receives funds and gives funds;

- the amount of funds;

- deadline for fulfillment of obligations;

- an indication that the money received as a deposit and transferred to ensure the implementation of the contract (agreement);

- date of drawing up and signature of the two parties.

If you have difficulties with the execution of the contract of sale or any other document, you can consult the lawyers of the company "You and the law" Lenivsky Group. We minimize all possible risks and will be happy to help!