Forfeiture of Deposit

The Forfeiture of Deposit rule is an important remedy for breach of contract in international trade contracts. It means that after one party pays a deposit, if the paying party breaches the contract, it has no right to demand the return of the deposit; if the receiving party breaches the contract, it shall return double the deposit. This term is commonly found in sales contracts and procurement agreements to guarantee contract performance. Usage scenarios include: the buyer cancels the order after paying a deposit in advance, or the seller refuses to deliver goods after receiving the deposit. Notes: The deposit amount usually does not exceed 20% of the total contract price, and it must be clearly stipulated as a 'deposit' rather than a 'down payment', otherwise the penalty rule does not apply. Unlike 'liquidated damages', the forfeiture of deposit rule has both punitive and security functions, and there is no need to prove actual loss. The difference from 'advance payment' is that if the advance payment is breached, only the principal needs to be returned, without double penalty. Foreign trade practitioners should clearly specify the deposit clause, applicable law, and dispute resolution method in the contract to avoid unenforceability due to vague wording.