With judgment no. 4301/2026, published on 25 February 2026, the Italian Court of Cassation recently ruled on a dispute concerning a complex real estate transaction initiated in 2005, focusing on the termination of a preliminary sale agreement supported by an earnest money deposit (caparra confirmatoria) and clarifying the boundary between contractual withdrawal and judicial termination.
The Facts of the Case
The case reached the Court of Cassation after years of litigation between prospective purchasers and prospective sellers. The preliminary sale agreement made the effectiveness of the contract conditional upon the approval of a subdivision plan (piano di lottizzazione) and the execution of a planning agreement with the Municipality, placing on the prospective purchasers the obligation to handle the urban planning procedure at their own care and expense.
However, the transaction was never completed. The purchasing companies therefore brought proceedings before the Court of Venice seeking a declaration that the preliminary agreement was ineffective and requesting the return of the sums paid as an earnest money deposit.
Conversely, the prospective sellers sought a declaration of termination of the preliminary agreement for serious breach by the prospective purchasers, recognition of their right to retain the earnest money deposit, and compensation for further damages.
The Court of Venice adopted a “neutral” interpretation of the failure to approve the subdivision plan, declaring the preliminary agreement ineffective and ordering the sellers to return the sums received.
The Venice Court of Appeal reached a completely different conclusion. Attributing responsibility for the failure of the condition to the purchasing companies, it declared the preliminary agreement terminated for breach by the purchasers and recognized the sellers’ right to retain the deposits. However, it dismissed the additional claims for damages, considering them generic and insufficiently proven.
The prospective purchasers then filed an appeal before the Court of Cassation. With the fourth ground of appeal, they challenged the finding of liability for breach, the declaration of termination against them, and the recognition of the sellers’ right to retain the deposit.
The Decision of the Court of Cassation
Called upon to rule on the matter, the Supreme Court based its reasoning on substantive law issues, addressing the central question of how to classify the claim brought by the non-breaching selling party - namely whether it constituted a claim for termination or for withdrawal in the presence of an earnest money deposit.
Referring to its own settled case law, the Court of Cassation reaffirmed that when a request for dissolution of the contractual relationship is accompanied not only by a claim to retain the deposit or to obtain payment of double the deposit, but also by a claim for compensation for additional damages, the case does not fall within the scope of withdrawal under Article 1385 of the Italian Civil Code.
Indeed, where the party combines the claim relating to the deposit with a claim for additional damages - as occurred in the present case - the claim falls within Article 1385(3) of the Civil Code (i.e., “If, however, the party who is not in breach prefers to seek performance or termination of the contract, compensation for damages shall be governed by the general rules”). Consequently, the action must be qualified as an ordinary claim for judicial termination for breach, subject to the general rules set out in Articles 1453 et seq. of the Civil Code and to the ordinary rules governing contractual liability, namely the duty to plead and prove the damage.
The Court of Cassation emphasized that the presence of a claim for additional damages shifts the action from the realm of withdrawal to that of judicial termination and reiterated that it is not possible to combine the “automatic” mechanism of the earnest money deposit - typical of withdrawal - with a separate and additional claim for damages.
Where the party also claims further damages, the deposit loses its function as a lump-sum pre-estimate of damages, and the loss must be pleaded and proven in accordance with the ordinary rules, including with respect to the portion corresponding to the deposit itself.
Specifically, remaining faithful to the facts of the case, the Court noted that the Court of Appeal had declared the termination of the contract for breach by the purchasers and, while rejecting the claim for additional damages due to lack of proof, had nevertheless recognized the sellers’ right to retain the deposit. This approach appears legally inconsistent.
Where the claim is structured as one for judicial termination combined with a request for additional damages, it is no longer possible to treat the deposit according to the autonomous mechanism of withdrawal under Article 1385 of the Civil Code; instead, the general rules on damages must apply, without any overlap between the two remedies.
Considering the above, the Supreme Court quashed the challenged judgment and remanded the case to the Venice Court of Appeal, sitting with a different panel.
Conclusion
The ruling therefore reiterates a very clear indication for contractual practice and litigation strategy. A party wishing to rely on the remedy of withdrawal with an earnest money deposit must choose the path of lump-sum liquidation of damages, thereby waiving any claim for additional compensation.
Conversely, a party who believes it has suffered more extensive damage may pursue the route of judicial termination but must assume the burden of specifically alleging and proving the loss suffered.
Lawyer Andrea Bernasconi and Lawyer Francesca Folla