My Bordeaux office regularly advises French or Portuguese clients living in France who are in dispute with sellers and estate agents refusing to return money paid for a Portuguese property purchase that did not proceed. The final deed may remain unsigned for many reasons: refusal to sign a preliminary sale agreement after a reservation payment, expiry under a condition requiring finance or planning permission, refusal to execute the deed, and so on. These recurring disputes justify examining what happens to payments made during negotiations. There is no simple legal answer: it depends on the classification the judge gives the money paid to the seller.
Article 441 of the Portuguese Civil Code presumes that any sum paid by a prospective buyer to a prospective seller under a preliminary sale agreement is a sinal deposit, even if described as an advance or part payment of the price. Unless expressly agreed otherwise, Article 442(1) and (2) applies. Paragraph 1 requires the deposit to be credited against performance due, or returned where that is impossible. Paragraph 2 allows its recipient to retain it if the payer fails to perform for reasons attributable to them; if the recipient is responsible for non-performance, the other party may demand twice the amount paid. Subject to the alternative of specific performance under Article 830, a defaulting seller must therefore repay twice the deposit as compensation. Before a preliminary agreement is signed, a reservation payment’s position is less certain because the parties are still negotiating the formation of their agreement. Case law nevertheless provides guidance.
The Évora Court of Appeal judgment of 24 November 2022 confirmed a Lisbon Court of Appeal precedent of 24 September 2014. A member of the Ismaili community travelled to Portugal during Prince Aga Khan’s visit. He was offered a plot for 5.200.000 €, with only its detailed plan approved, and paid 52.000 € to reserve it. When presented with the preliminary agreement contemplated by the reservation document, he refused to sign and requested repayment, which the seller rejected.
The court held that the reservation was merely an intermediate negotiating agreement and could not qualify as a preliminary contract under Article 410 of the Civil Code because formal requirements were not met. Without proof of fault by the buyer under the pre-contractual liability rules in Article 227, he could not forfeit the money, which had to be returned. The unresolved question is how to reduce the risk of the seller’s insolvency preventing actual repayment; that will be addressed in the next article.
Dr. Pedro Emanuel de OLIVEIRA
Lawyer