Under Article 93 of the Obligations and Contracts Act, earnest money serves as evidence that a contract has been concluded, secures performance and, in the event of breach, compensates the party that has performed or is ready to perform. The earnest-money agreement is ancillary to the contract and gives either party, in specified circumstances, the power to rescind an otherwise valid contract. It provides a simpler means of unilateral rescission out of court than the procedure in Article 87(1). Under Article 93(2), that right belongs to the party that is not in default. If the other party culpably fails to perform an obligation for which earnest money was agreed and paid, the party that gave the earnest money and is not in default may withdraw from the contract, that is, rescind it, and demand twice the amount back. Rescission requires both a failure by the other party to perform for a reason for which it is responsible and performance, or readiness to perform, by the party seeking rescission.<\/p>\n
No right to rescind arises without non-performance, and it does not subsist if the debtor is not responsible for the failure, including where there is a fortuitous event or force majeure. Nor can the contract be rescinded where the debtor is withholding performance under the defence of non-performance in Article 90(1) of the Act.<\/p>\n
This article does not provide a legal opinion or advice about any particular person or situation. For assistance with an individual case, consult a lawyer practising in civil or contract law.
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