A deposit refers to assets which could be MONEY or OTHER ASSETS , given by one party to another as EVIDENCE of a contract and as a GUARANTEE of performance under that contract, explained as follows:
As EVIDENCE of a contract:
When parties enter a contract and place a deposit, the law presumes that the deposit serves as evidence of the contract between them.
However, this presumption is not conclusive, meaning that if there are other facts or evidence showing that a contract hasn’t been made yet, despite placing a deposit, it is considered that the "contract has not been formed."
For example, a customer interested in buying a house in a project, unsure if they can get a bank loan, decides to deposit 50,000 Baht to reserve the house. They agree with the project that they will apply for a loan first, and if approved, will then proceed to sign the sale agreement. But if the loan is denied, the project agrees to refund the deposit.
Later, when the bank denies the loan, the customer has the right to get the deposit back. The deposit in this case did not result in a sale agreement. The project must return the deposit and cannot sue the customer to buy the house.
But if the bank approves the loan, both the customer and the project must sign the sale agreement first to consider that there is a contract between them. The other can sue under this contract if either party breaches the sale agreement.
As a GUARANTEE of performance under the contract:
Once individuals enter a contract, if there is a deposit, it also acts as a guarantee of performance under the contract.
The EFFECT of a deposit as a GUARANTEE of performance depends on the agreement between the parties.
That is if the parties have agreed on how the deposit will be treated in case of performance or non-performance under the contract, such as using it to pay off other debts, returning half to the depositor, or the deposit recipient keeping it, etc., it will be as per the agreement.
If the parties DID NOT AGREE otherwise, the effect will be AS PER THE LAW, which is:
1. If the parties PERFORM the contract:
1.1 In case the deposit is “other assets, not money ”
The deposit recipient must return the deposit to the depositor.
For instance, Sarah hires Adam to tailor a shirt , placing a watch as a deposit. When Sarah collects the shirt from Adam and pays the tailoring fee, Adam must return the wristwatch to Sarah, the depositor.
1.2 In case the deposit is MONEY
It can be used as part of the payment under the contract.
For example, Sarah hires Adam to tailor a shirt for 2,000 Baht, placing a 500 Baht deposit . When Sarah collects the shirt and pays the tailoring fee to Adam, the 500 Baht deposit is considered part-payment for the tailoring, so Sarah only needs to pay an additional 1,500 Baht.
2. If the parties BREACH the contract or the debt settlement becomes IMPRACTICABLE (i.e., fulfilling the contract becomes impossible):
2.1 The party receiving the deposit can FORFEIT the deposit under the following conditions:
2.1.1 The DEPOSITING party is AT FAULT.
For example, Sarah contracts to buy wood from Adam and places a deposit of 200,000 baht, agreeing to receive wood in instalments as per a timeline. Upon inspecting each instalment, Sarah will pay Adam in cash.
It turns out, that Adam has delivered wood to Sarah in 10 instalments as per contract, and Sarah has accepted them, but Sarah doesn’t pay Adam, owing 450,000 baht for the wood. Adam demands payment, but Sarah still doesn’t pay.
In this case, Sarah, the depositing party, defaults on the payment. Hence, Adam has the right to forfeit the deposit of 200,000 baht and can still demand Sarah to pay the remaining amount.
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2.1.2 Debt settlement becomes IMPRACTICABLE where the DEPOSITING party is RESPONSIBLE.
For instance, Sarah contracts to buy a car from Adam, places a deposit of 300,000 baht, agrees to pay the car price and receives the car on December 31 of the same year.
Before the due date, Sarah borrows the car from Adam for a test drive recklessly, causing the car to overturn and burn down.
In this case, the debt settlement becomes impracticable due to Sarah, the depositing party's actions. Therefore, Adam can forfeit the deposit of 300,000 baht. Moreover, if Adam incurs damages exceeding the forfeited deposit amount, Adam has the right to claim the excess damages from Sarah.
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2.1.3 The CONTRACT is TERMINATED due to the DEPOSITING party's FAULT.
For instance, Sarah contracts to buy a car from Adam, places a deposit of 300,000 baht, and agrees to pay the car price and receive the car on December 31 of the same year.
On the due date, Adam is ready to deliver the car, but Sarah doesn’t pay the remaining car price to Adam.
In this case, Adam can terminate the contract and forfeit the deposit of 300,000 baht. Moreover, if Adam incurs damages exceeding the forfeited deposit amount, Adam has the right to claim the excess damages from Sarah.
2.2 The party receiving the deposit must RETURN the deposit under the following conditions:
2.2.1 The RECEIVING party is AT FAULT.
For instance, Sarah contracts to buy a car from Adam, places a deposit of 300,000 baht, and agrees to pay the car price and receive the car on December 31 of the same year.
On the due date, Sarah is ready to pay the remaining car price to Adam, but Adam doesn’t deliver the car to Sarah.
In this case, Adam must return the deposit of 300,000 baht to Sarah. And if Sarah incurs damages, Sarah still has the right to claim damages.
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2.2.2 Debt settlement becomes IMPRACTICABLE where the RECEIVING party is RESPONSIBLE.
For instance, Sarah contracts to buy a car from Adam, places a deposit of 300,000 baht, and agrees to pay the car price and receive the car on December 31 of the same year.
Before the due date, Adam takes the aforementioned car for a drive to another province recklessly, causing the car to overturn and become completely damaged.
In this case, the debt settlement becomes impracticable due to Adam, the receiving party's actions. Therefore, Adam must return the deposit of 300,000 baht to Sarah.
2.2.3 The CONTRACT is TERMINATED due to the RECEIVING party's FAULT.
For instance, Sarah contracts to buy a car from Adam, places a deposit of 300,000 baht, and agrees to pay the car price and receive the car on December 31 of the same year.
On the due date, Sarah is ready with the money for the remaining car price, but Adam refuses to deliver the car to Sarah without a valid reason.
In this case, Sarah can terminate the contract, and Adam must return the deposit of 300,000 baht to Sarah. Moreover, if Sarah incurs damages exceeding the forfeited deposit amount, Sarah has the right to claim the excess damages from Adam.
2.2.4 The parties AGREE to TERMINATE the CONTRACT, the party receiving the deposit must RETURN the deposit to the depositing party.
For instance, Sarah contracts to buy a car from Adam, places a deposit of 300,000 baht, and agrees to pay the car price and receive the car on December 31 of the same year.
Later, Sarah changes her mind and no longer wants to buy the car, and at the same time, Adam also doesn’t want to sell the car to Sarah. Therefore, Sarah and Adam agree to terminate the car buying-selling contract.
In this case, Adam must return the deposit of 300,000 baht to Sarah.