Earnest money under Bulgarian law

Consistent case law holds that, under the principle of freedom of contract in Article 9 of the Obligations and Contracts Act, parties may agree on the consequences of their conduct both when concluding a contract and if they fail to perform their obligations. They may provide for contractual penalties or a right to withdraw; their freedom is limited only by mandatory law and good morals. Whether a particular contract is backed by earnest money and, if so, in what amount, is therefore a matter for the parties. They decide whether to treat a particular performance as earnest, confirming that the contract was concluded and securing its performance. See, among others, Supreme Court of Cassation Judgments No. 206 of 7 December 2010 in commercial case No. 623/2009; No. 71 of 9 July 2010 in commercial case No. 726/2009; No. 775 of 16 February 2011 in civil case No. 906/2009; and No. 474 of 13 July 2010 in civil case No. 457/2009. Under Article 93 of the Act, an earnest arrangement means that an item or sum given by one party when the contract is made serves as evidence of its conclusion and as security for its performance. If the other party fails to perform, the non-defaulting party may withdraw and retain the earnest received or, if it gave the earnest, demand twice the amount. The parties decide its function when making the contract; absent a special agreement, the default rules in Article 93 apply. These rules are not mandatory: the parties may agree on terms different from those laid down in the Act. Whether they agreed on earnest is determined by interpreting the contract. If its terms give an advance payment both a security and a compensatory function by expressly regulating the consequences of non-performance, that payment constitutes earnest. This is the reasoning of Supreme Court of Cassation Judgment No. 71 of 9 July 2010 in commercial case No. 726/2009. The law does not prevent an advance paid under a bilateral contract from also serving as earnest. In that event, the deposit forms part of the fee or price and is credited against it on performance. Upon non-performance it may be retained or returned in the amount the parties agreed; if there is no express stipulation, the rule on return of double the amount in Article 93(2) applies.

This article is not a legal opinion or advice about any particular person or situation, and the author does not claim to cover commercial and civil contracts exhaustively. For legal assistance in a similar case, consult a lawyer practising commercial or civil law.