Short answer. Not automatically. Earnest money is part of the price and proof that the sale was already perfected, so a buyer who walks away is in breach rather than exercising a right to withdraw. Forfeiture follows only from a stipulation or a court's award, and a court may reduce an excessive one.

What the law says

Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract.

Civil Code, Article 1482 — Earnest Money. Read the full provision →

The payment is not a fee for the right to change your mind

Article 1482 of the Civil Code says that Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract. Both halves cut against the buyer who wants out. Because it is part of the price, it is a first instalment rather than a separate charge. Because it is proof of perfection, its payment shows the sale was already concluded — the thing and the price were agreed. A buyer in that position is not withdrawing from negotiations. He is refusing to complete a contract that already binds him.

Backing out is a breach, and the seller has a choice

Where obligations are reciprocal, Article 1191 gives the injured party a choice between demanding fulfilment and rescinding the obligation, with damages in either case. So a seller faced with a buyer who has abandoned the purchase may insist that the sale be completed and the balance paid, or may treat the contract as rescinded and claim what the breach cost him. Neither route makes the downpayment automatically the seller's to keep. Rescission ordinarily requires mutual restitution, which points the other way, and any sum retained has to be justified as damages or by an agreed forfeiture clause.

Most forfeitures come from the contract, not the Code

In practice the money is retained because the document said it could be. A clause providing that the deposit is forfeited on the buyer's default is a penal clause, and Article 1226 provides that in obligations with a penal clause the penalty substitutes for the indemnity for damages and the payment of interests in case of non-compliance, unless the parties stipulated otherwise. That is a substitute, not an addition: a seller relying on a forfeiture clause normally cannot also claim separate damages for the same default. So the first document to read is the receipt or agreement itself, and the exact words of any default clause in it.

An excessive forfeiture can be cut down

A forfeiture clause is not beyond challenge. Article 1229 empowers the judge to equitably reduce the penalty when the principal obligation has been partly or irregularly complied with, and even where there has been no performance, if the penalty is iniquitous or unconscionable. A buyer who has paid a substantial part of the price and then defaulted is squarely within that provision. Whether a court will reduce a particular forfeiture depends on how much was paid, how far the sale progressed, and what loss the seller actually suffered — none of which can be assumed from the clause alone.

Cases citing this provision

These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.

Related provisions

Note. Statute text quoted on this page is reproduced from the official enactment and is linked to the full provision. The explanation around it is general legal information from Vivas & Nobles Law Office, not legal advice. Whether it applies to your situation depends on facts only a lawyer reviewing them can assess.