Earnest Money

Also known as: Good Faith Deposit · Earnest Money Deposit · Down Payment Deposit

Definition

Earnest Money, in the Philippines, is a sum of money paid by a buyer to a seller to show good faith and intent to purchase a property. Under Article 1482 of the Civil Code of the Philippines, earnest money is legally considered as part of the purchase price and as proof of the perfection of the contract of sale. Typically ranging from 1% to 5% of the property value, it differs from option money (which only buys time to decide); earnest money commits both parties, and the buyer may forfeit the amount if they back out of the transaction without valid legal grounds. (Wikipedia, Earnest Money Govt)

Identities

Source Type	Identity
Wikipedia	Earnest money
Wikidata	Q3231818
DBpedia	Earnest_money
ProductOntology	N/A
Wiktionary	earnest money
Library of Congress Subject Headings (LCSH)	Earnest money
MeSH	N/A
NCBI Taxonomy	N/A
AGROVOC	N/A
Google Scholar	earnest money Article 1482 Civil Code perfected contract sale Philippines
ConceptNet	earnest_money
OpenCyc	N/A

Also Known As

Good Faith Deposit
Earnest Money Deposit
Down Payment Deposit

Examples and Analogies

Earnest Money Check: A check submitted by a buyer along with their formal Offer to Purchase to show serious intent.
Contract Earnest Clause: A legal clause in a reservation agreement specifying the forfeiture terms of the earnest deposit.

Usage Scenarios

1. Submitting an Offer to Purchase

A buyer offers to purchase a house in Quezon City, submitting a PHP 100,000 earnest money check to the seller along with the offer sheet.

2. Perfecting a Property Sale

The seller accepts the earnest money deposit. Legally, the contract of sale is perfected, and the parties proceed to draft the Deed of Absolute Sale.

Strategies

Ensure that the terms of the earnest money (including refundable conditions, refund timelines, and forfeiture rules) are documented in writing before payment.
Verify that the earnest money amount is deducted from the final down payment or purchase price at closing.

Security and Safety Measures

Never pay earnest money without securing a signed official receipt from the property owner or their authorized broker.
Verify that the title is clear and that the seller is the registered owner before depositing any good faith money.

Historical Context

The concept of earnest money is rooted in Roman law (known as arrha) and was integrated into the Civil Code of the Philippines in 1950 under Article 1482. The law established a clear legal distinction between earnest money (part of the price, perfects the sale) and option money (separate consideration for the option to buy), protecting transaction parties from unilateral cancellations. (Wikipedia)

Challenges and Controversies

Forfeiture Disputes

Sellers refusing to refund earnest money when the sale falls through due to factors beyond the buyer’s control (e.g., bank loan disapproval).

Unscrupulous Agents

Unlicensed agents collecting earnest deposits and disappearing, highlighting the need to deal only with licensed brokers.