Deposits according to Spanish Law
Before analyzing the different types of “arras” (deposits) that exist in the Spanish Legal System, we define the concept: “Arras” is a money deposit delivered in purchase agreements in cases of personal property and real estate.
There are three types of deposits in the Spanish Legal System: penitential, confirmatory, and criminal.
The Spanish Civil Code only regulates penitential deposits, defined under Article 1.454 of the Spanish Civil Code:
“If earnest money or a deposit were delivered in a purchase agreement, the purchaser may terminate the purchase agreement if the he or she agrees to forfeit the earnest money or deposit, or the seller can terminate if he or she returns double the amount of the deposit.”
On the other hand, Article 343 of the Spanish Commercial Code regulates confirmatory deposits:
“The amount delivered as a deposit in a business sale shall always be deemed to have been delivered on account of the price and as evidence to confirm the agreement, unless otherwise provided.”
This means that confirmatory deposits are a mere advance payment of the agreed price. Therefore, the rules on the obligations between the parties apply in this case.
If a purchase agreement is silent on deposits, the agreed deposit is confirmatory and not criminal.
The Provincial Court of Sevilla followed the same criteria in a decision on November the 17, 2003:
“The Spanish Supreme Court jurisprudence has traditionally and repeatedly declared that Article 1.454 of the abovementioned Legal Body is not mandatory. On the contrary, since it is penitential, for the legal text to apply, the parties must clearly establish the deposits according to their intent. The intent of the parties to break away from the convention by such termination means must be clear and obvious; otherwise, any payment or delivery will be assessed and conceptualized as part of the price or as an advance payment. This precept can be exceptional from a legal perspective, and it demands a restrictive construction of the contract clauses resulting in the undoubted intent of the parties in the sense that it is indeed a penitential deposit. Otherwise, the received amount confirms the contract: it is, therefore, a confirmatory deposit, and, consequently it is only an advance payment.
Finally, we consider criminal deposits, regulated under Article 83 of the Spanish Commercial Code. This Article establishes:
“Purchase contracts entered into at an open market may be by cash or instalment; the former shall be executed on the same day they are entered into, or at the latest, within the following 24 hours . . . Should these hours elapse without either of the parties having asked for the compliance with the agreement, the agreement will be deemed null and void, and the agreed tokens, earnest money, and the deposits shall be forfeited in favour of the party that received them.”
If the contracting parties expressly reach an agreement upon this type of deposit, they are agreeing upon the obligation to fulfil it. In the event of a renunciation, the amount already delivered as a deposit is forfeited.
Deposits guarantee obligations undertaken. However, in the case of deposits agreed upon in a purchase agreement, it is advisable to determine the type of deposit contemplated and possible consequences that a breach of contract may have for the defaulting party to avoid misinterpretations.
Monika Bertram
Mariscal Abogados, Spanish lawyers in Madrid, Spain
Member of Eurojuris España, international network of law firms
