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Financial penalties for not on time goods or services delivering in Ukraine

It is not a secret that sometimes the moment of goods delivery can be different than the one stipulated by a contract. It can be due to force majeure or some negligence regarding defining such moment during entry into contract. It can happen that goods will be delivered even prior to the provision of prepayment stipulated by a contract. Such negligible treatment of contract’s stipulations may be used by unfair counterparties which upon delivery of goods may avoid payment for them for quite a long time. Outraged entrepreneurs immediately go to court with claims about return of property that was obtained without any grounds or about collection of debt for the delivered goods which causes other possible risks. We used to prepare many legal advices on this matter and in this material will highlight some aspects.

The thing is that usually contracts that stipulate 100% prepayment either do not stipulate terms of buyer’s obligations regarding payment for goods at all or these terms are unrelated to terms of delivery. There occurs a counter relation – terms of delivery are related to the date of payment. As the result early fulfillment of obligations may become an obstacle for satisfaction of a lawsuit that was filed for collection of such payment or return of delivered goods.

When rejecting such lawsuits courts have their decisions based on the fact that both parties failed to fulfill requirements regarding prepayment and neither one objected so there occurs alternation of material terms based on mutual consent of parties. As the result of such significant change of circumstances the term that is set for buyer to fulfill his obligation regarding payment remains undefined. And therefore in accordance with Section 2 of Article 530 of the Civil Code of Ukraine a creditor is entitled to demand its fulfillment at any time but a debtor is obligated to fulfill such obligation within 7days after the demand was received. If the demand is absent then the term of obligation fulfillment by a buyer is also undefined so the latter is not violating anything.

Such logic can be followed, for example, in resolutions of the High Commercial Court of Ukraine number 15 dated 03.02.2009 and 6/54-38 dated 06.04.2010. Both decisions of the High Commercial Court of Ukraine left lawsuits related to collection of debt for the delivered goods unsatisfied due to the fact that the seller did not file a request about payment.

Opposite point of view can actually be supported (that collection of debt is possible even without payment demand) but this position is followed by courts not that often. It is possible to collect the debt without filing demands for payment based on Section 1 of Article 692 of the Civil Code of Ukraine in accordance with which a buyer is obligated to pay for goods upon their acceptance or acceptance of title documents to them if a contract of regulatory acts do not provide different term of payment. Advantage of this provision comparing to Section 2 of Article 530 of the Civil Code of Ukraine was specified for example in the resolution of the High Commercial Court of Ukraine number 23/161 dated 28.01.2010.

Besides one can point out to Section 2 of Article 538 of the Civil Code of Ukraine which provides that counter fulfillment of obligations involves obligation of parties to fulfill their responsibilities simultaneously if regulatory acts or contract provide otherwise or if different can be concluded based on the nature of obligation or business customs. And Section 4 of Article 538 of the Civil Code of Ukraine provides that if counter fulfillment of obligations is performed by one party despite non-fulfillment by the other one then the second party must fulfill its obligation. Unlike Section 2 of Article 530 of the Civil Code of Ukraine this provision does not connect fulfillment of debtor’s obligation with demand of a creditor since a buyer cannot be forced to accept early counter fulfillment. By accepting such fulfillment the buyer agrees on the fact that he is obligated to fulfill his obligation related to payment.

In its resolution number 17/93 dated 10.04.2008 the High Commercial Court of Ukraine expresses an opinion that these articles have advantages comparing with Section 2 of Article 530 of the Civil Code of Ukraine. In its decision the court came to the conclusion that obligations based on bilateral contracts in which the term of their fulfillment is not stipulated fall under regulations of Section 2 of Article 530 of the Civil Code only regarding a debtor that have already received a demand about fulfillment. In other cases Section 2 of Article 530 of the Civil Code of Ukraine should not be applied since the term of fulfillment of mutual counter obligations is provided by Section 2 of Article 538 of the Civil Code of Ukraine. At the same time in its resolution number 2-20/2406-2005 dated 14.09.2005 the High Commercial Court of Ukraine came to an opposite conclusion and pointed out that application of Article 538 of the Civil Code is possible only in cases when content of a contract stipulates connection between one obligation and others.

Generally in case of filing claims about collection of debt for early delivered goods a court can make decisions in favor of either side. And therefore in order to avoid risks of court proceedings in such situations we recommend to file a demand about payment prior to a lawsuit filing.

This material was written by legal experts of law firm “Pravova Dopomoga”.

It is related to practice of Problem loans and service of Legal representation.

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