The difference between confirmatory arrests and penitential arrests

When we sign an earnest money contract prior to formalizing the deed of sale, it is important to determine the type of earnest money we are subscribing to, as each type will have very different legal consequences; the lack of specification can lead to conflicts between the parties.

Before formalizing the sales contract, it is common to sign an earnest money contract between the parties to ensure the completion of the sale. It will include the terms of the sales contract, such as the description of the property, the sale price, or the date of the notarized public deed signature. Earnest money involves the payment of a sum of money on account of the total agreed price. There are different types of earnest money, each with distinct legal consequences. Therefore, it is important to differentiate and clearly express in the contract the type of earnest money being subscribed to; otherwise, the interpretation of the terms may lead to conflicts between the parties.

We can distinguish three types of earnest money: penitential, confirmatory, and penal. However, we will focus on confirmatory earnest money and penitential earnest money, as these are the most common in practice:

1. Penitential Earnest Money: Allows either party to withdraw from the contract without the need to allege a cause. If the withdrawal is made by the buyer, they will forfeit the earnest money paid to the seller. Conversely, if the seller withdraws from the sales contract, they must return the earnest money doubled, i.e., deliver to the buyer twice the amount received. Penitential earnest money is the only type expressly regulated in the Civil Code, specifically referenced in article 1,454.
2. Confirmatory Earnest Money: Involves an advance payment on the final purchase price as a guarantee of fulfillment. These are governed by the general rules of reciprocal obligations. In case of non-compliance by either party, the other is entitled to demand compliance or, alternatively, request the rescission of the contract with the corresponding compensation for damages, in accordance with article 1,124 of the Civil Code.

If one wishes to agree on penitential earnest money, it must be expressly stated to avoid potential conflicts of interpretation.

The key difference between penitential and confirmatory earnest money lies in the fact that penitential earnest money allows withdrawal from the contract, while if one signs confirmatory earnest money, the other party can demand compliance.

In both cases, the amount of earnest money can be freely agreed upon by the parties. In practice, it is often set at around 10% of the total sale price.

Specific Regulation in Catalonia: When the property subject to sale is located in Catalonia, the provisions contained in Book VI of the Catalan Civil Code, relating to obligations and contracts, must be applied, where the regulation of the sales contract is found.

To avoid conflicts and confusion, the Catalan Civil Code has introduced changes regarding earnest money. If the contract does not specify anything in this regard, earnest money will be considered confirmatory in all cases. To be penitential earnest money, it must be expressly agreed upon, as established by article 621-8 of the Catalan Civil Code. In this case, if the buyer withdraws from the contract, they will forfeit the earnest money paid, and if it is the seller who withdraws, they will return it doubled.

Earnest money has been widely discussed in jurisprudence as a source of conflicts between parties. Therefore, our recommendation is to draft a clear earnest money contract that expressly states the type of earnest money to which we are subject, to be clear about the legal consequences we are exposing ourselves to and thus avoid future conflicts.