What is the difference between an advance and a deposit? Which is better to choose?

On October 1, 2020, the Supreme Court, within the framework of case No. 361/8331/18, investigated the issue of the difference between an advance and a deposit, as well as the consequences of non-fulfillment of the obligation by each of the parties.

The main difference is advance does not perform a security function. The party that issued the advance has the right to demand its return in case of termination of the obligation before the beginning of its performance, as well as in all cases of non-fulfillment of the contract.

In case of termination of the contract for any reason advance must be returned to the buyer in full.

The essential difference between an advance and a deposit, as noted above, is that the advance is not charged with the function of securing the obligations assumed by the parties. Therefore, regardless of which party is responsible for the default, whoever received the advance must return it. Therefore, if the seller or the provider of services (works) received a certain amount of money as an advance, and the contract was not fulfilled, then, regardless of whose fault it happened and what circumstances prevented it, the advance must be returned in any case.

In contrast to an advance, the deposit is subject to return only in case of termination of the obligation before the beginning of its performance or due to the impossibility of performance. If the contract specifies advance payment in the form of a "deposit", it is better to refuse such an agreement, because the "deposit" is not refundable!

In case of doubt regarding the legal nature of the amount paid to the account of payments due from the party under the contract, this amount is considered to be paid as an advance, unless it is explicitly indicated that it is a deposit (part 2 of article 570 of the Civil Code).