An advance and earnest: definition and difference

Probably many, transaction had to pay an advance or give an earnest. However, everyone knows, the earnest different from the advance?

This article provides an example of judicial practice, which was clarified in advance and earnest relation.

In Lithuanian Supreme Court practice, there is uncertainty about an earnest and advance definition, it is necessary to distinguish between these two concepts.

Civil Code of the republic of Lithuania article 6.98 “Earnest money shall be deemed to be a monetary amount issued by one contracting party from the payments due to be paid by him under a contract to the other party to prove the conclusion of the contract and secure its performance. The earnest money cannot be used for securing a preliminary contract, likewise a contract that must be concluded in the obligatory notarial form. ”

Meanwhile, we can’t find definition of advance in Civil Code of the republic of Lithuania. Only of other Civil Code articles we can defind that advance  –  part of its price, paid to person who undertakes to sell an object (thing).

In Lithuanian Supreme Court civil case no. 3K-7-23 / 2000 found that earnest performs several functions:

  1. Payment – earnest in the amount, with debtor need to pay to creditor
  2. probative – earnest transferred to the award show. This feature means that the agreement on the earnest of a complementary nature, if not the principal obligation, it can not be an agreement on the earnest.
  3. security – earnest shall be communicated to the obligation (contract) to ensure compliance. Agreement on earnest parties understand that if the contractor is responsible for failure to earnest given country, this earnest remains the second party, and if the contract is responsible for failure to earnest receiving countries, it is required to pay to the second party to double earnest amount.

Lithuanian Supreme Court found that the presence of these three features capable of distinguishing the earnest of advance payment. The advance, as earnest, performs the function of a payment (credited to future payments) may carry out evidential function (both valid claim, as well as an agreement to conclude the contract in the future). But unlike the earnest, the advance has never been completed security function, if country paid an advance, is entitled to claim a refund on all contractual obligations in cases of non-compliance, and the party received an advance, under any circumstances, do not get it back double.