Reimbursement down payment in case of cancellation?
In a recent case the central issue was whether a buyer was entitled to reimbursement of his down payment after a sale had been cancelled. The court investigated the agreement between the parties on this matter. The issue is whether an unconditional right to restitution does not compromise the purpose of a down payment. Dutch contract lawyer Marco Guit summarizes the court ruling.
Down payment for reservation 100 ambulances
This dispute concerns the following. A buyer approaches the company Holland Trading and informs that he is looking for ambulances. Holland Trading informs the buyer that he has found 100 ambulances from a supplier. The price is €19,000 for each ambulance, increased with €1,250 for transport and surcharge for Holland Trading. Because there is some urgency, the buyer asks Holland Trading to reserve these ambulances. For this purpose the buyer – by request of Holland Trading – makes a down payment of €100,000. Somewhat unexpectedly the buyer informs the company some weeks later that the deal is off, due to insufficient financial means.
Demand buyer: complete reimbursement down payment
The buyer then requests reimbursement of the down payment. Holland Trading refuses this. During the proceedings the agreement between the parties concerning the down payment is investigated. The court finds that the down payment cannot be seen separately from the delivery. At the time that the down payment was made, there was an agreement in principle about the delivery of 100 ambulances for a certain price. According to the court this was an issue of offer and acceptance. Maybe not explicitly, but in principle offer and acceptance can take place in any form or shape, and therefore also in conduct, such as making a down payment.
Court: buyer not entitled to reimbursement
No further agreements were made about the down payment. The court finds that in that case the buyer could not automatically assume that he would receive the amount of €100,000 back, if delivery did not take place. It also seems implausible that the supplier would have been willing to reserve 100 ambulances for a down payment and would then reimburse the total amount if the deal falls through. In such a case the down payment would have no value at all. The court dismisses the buyer’s claim.
Down payment: partial payment before delivery
A down payment is payment of part of the agreed price for an item or service before the counterparty has to deliver his quid pro quo. A performance is secured or reserved with a down payment. For example, the down payment for a holiday home some months before the actual holiday, or the down payment for a product that has to be ordered, such as a couch.
AMS Advocaten in disputes about breach of contract
Most contracts or general terms and conditions include stipulations about possible reimbursement. For example, in case of cancellation usually a certain percentage of the down payment is retained. There is no legal rule that a down payment always has to be paid back. If complete reimbursement of a down payment would always have to take place, this would – as the court rightly states – compromise the purpose of the down payment. After all, the delivering party also wants security that the couch ordered is picked up or that the holidaymaker shows up.