Article 1433 of the Monegasque Civil Code stipulates that when “a promise of sale has been made with a deposit, each of the contracting parties has the right to dispose of it: the party who gave the deposit loses it, and the party who received it returns double the amount”.

It should be remembered that, according to the wording of this article, two situations must be distinguished: if the person who renounces the transaction is also the person who paid the deposit, the latter must forfeit it. On the other hand, if the person who received the deposit abandons the transaction, the deposit is returned at double the value paid.

Deposits in the Monegasque Civil Code

Deposits are a commercial mechanism that has existed since ancient times. Historically, deposits were a way for parties to record their commitment to a transaction by paying a symbolic sum of money, thereby marking the conclusion of an agreement.

There is no question of questioning the original evidentiary function of deposits, which is perfectly legitimate. However, the use of deposits for this purpose alone seems anachronistic, particularly in the context of the Principality. Real estate transactions are strongly influenced by a business-like conception of contractual relations. It is surprising that a mechanism inherited from Roman civil law should survive in such an environment, when alternative guarantee instruments exist.

On the other hand, the deviation resulting from contractual practice is open to criticism insofar as it leads to down payments being diverted from their original function and used as a release instrument.

The contractual practice of deposits in the Principality

As such, and unlike a deposit, a down payment offers the purchaser a way out until the contract is concluded. Contractual practice in the Principality seems to assimilate deposits to a device more akin to a forfeiture clause, which creates damaging contractual uncertainty. In addition, the conditions for returning deposits, the circumstances in which they may be retained and the associated deadlines may be subject to disagreement, leading to disputes that should not normally arise in business relationships. This complexity runs counter to the need for simplicity and certainty in modern property transactions.

Using deposits as leverage

Surprisingly, outside the business context, the use of deposits can be criticised not for its liberatory function, but because the instrument is used for comminatory purposes. This form of “pressure deposit”, which occurs when the amount of the deposit is close to 20% of the total amount of the transaction, indirectly coerces the consumer because of the risk of financial loss involved. Consumers may thus be dissuaded from leaving a contractual relationship even if they encounter difficulties or unforeseen circumstances, which may trap them in undesirable financial commitments. As it stands, the over-representation of deposits in transactions in Monaco is therefore difficult to justify.

Rethinking the use of deposits in the modern commercial context

Finally, it should be noted that legislative developments have limited or strictly controlled the use of deposits in many countries. This development underlines the growing perception of the inappropriateness of deposits in the commercial context. It would be worthwhile for the Principality to dust off its system by reconsidering the use of deposits or by exploring new payment and guarantee methods more suited to modern commercial practices.