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Be careful to use deposit in contract

The deposit is English word, not Chinese. In international business, both parties usually use the word deposit, pay some portion in advance. But if dispute occurs, and brings to Chinese court, this word deposit will be translated into Chinese, then difference occurs. This word can be translated into two different Chinese characters. 订金or定金.They have same pronunciation but totally different meaning.


One definition订金:The deposit refers to the money paid by one party to the other party for the needs of the transaction, which does not have the function of guarantee. In general, the deposit delivered is regarded as an advance payment. When the transaction is successful, the deposit serves as the payment for goods. When the transaction fails, the deposit shall be returned in full. Generally, the deposit is regarded as an advance payment and does not have the nature of guarantee.


Two definition定金:Deposit refers to the money paid by one party to the other party to ensure the performance of the contract. If the party paying the deposit fails to perform its obligations, it has no right to require the other party to return the deposit; If the party receiving the deposit fails to perform its obligations, it shall return double the deposit to the other party. After the debtor performs its obligations, according to the agreement, the deposit shall be set off against the price or recovered.


According to recent court decision about the explanation of the deposit, the court has the opinion as following. The court held that the specific meaning of “deposit” and its legal nature, according to the provisions of Chinese laws, in the absence of agreement and no evidence provided to prove that the nature of “deposit” by both sides, deposit is not clearly defined in contract, the amount delivered in advance by the consignee shall not be defined as advance payment, that is, the legal nature of “deposit” shall be recognized as advance payment.


In conclusion, in practice, it is better to use advance payment in contract instead of deposit. If you are buyer, you can add liquidated damages in contract. Liquidated damages refer to the payment made by the parties after the breach of contract, which is determined in advance through negotiation.


Question: Judge the meaning of deposit in this article: If this agreement is terminated by the Purchaser pursuant to Section 11 due to the Seller’s or Seller Shareholder’s breach of this Agreement, Seller and the Purchaser must promptly instruct the Escrow Agent to release the Deposit and all interest earned on it to the Purchaser in accordance with the Escrow Agreement, and the Seller shall also pay within ten (10) Business Days after such termination an amount equal to the Deposit to a bank account designated by the Purchaser as liquidated damages.



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