The buyer may breach contractual obligations, leading to two primary types of disputes: the buyer’s failure to meet payment obligations and the buyer’s failure to accept the goods. Disputes related to the buyer’s failure to pay are considered the most common in sales contract disputes. These disputes often arise from the buyer’s late payment, non-payment, or incomplete payment for the goods. In this article, TNTP will discuss these two types of disputes and solutions to prevent and mitigate breaches of the buyer’s obligations.
1. Disputes Related to Payment Obligations
To minimize and limit losses and potential disputes, the seller should include the following provisions in the sales contract:
- Payment Schedule
Instead of stipulating that the buyer must pay the full value of the goods after receiving them, the seller can require the buyer to pay the full value before receiving the goods.
If the buyer does not agree to prepay the full value of the goods, the seller can arrange for installment payments. Accordingly, the buyer must pay a portion of the value upfront, with the remainder due within a specified period after the seller sends the payment request documents or after parties sign the Goods Receipt. The seller should pay particular attention to the payment deadlines and clearly outline these terms in the contract.
- Temporary Suspension of Delivery
The seller may stipulate the following provision in the contract: In case the buyer breaches any payment obligation, the seller has the right to temporarily suspend delivery until the buyer fulfills all payment obligations. This suspension of delivery can be seen as a measure to pressure the buyer into paying for the goods. Additionally, this clause can serve as a valid basis in situations where disputes arise between the parties, for instance, when the buyer claims the seller violated delivery deadlines while the seller argues that the buyer’s failure to pay justifies the temporary suspension of delivery.
- Debt Reconciliation
For standalone sales contracts, debt reconciliation may not be necessary. However, in cases where the parties enter into a principle contract and execute multiple purchase orders, signing a Debt Reconciliation Protocol is essential.
The Debt Reconciliation Protocol serves as a basis for the buyer to fulfill their payment obligations. Furthermore, in arbitration or court disputes, the Debt Reconciliation Protocol is considered important evidence that the buyer has acknowledged their payment obligations to the seller. When executing the Debt Reconciliation Protocol, the parties should also stipulate the authority to sign the protocol.
- Other Penalties
The seller may stipulate in the contract that the seller has the right to unilaterally terminate the contract, reclaim the goods, and demand the buyer compensate for damages, pay penalties for breaches, and pay late payment interest. The buyer is still obliged to pay for the goods even if they are lost or damaged after the risk has passed from the seller to the buyer under the law or the contract.
For penalty clauses, the parties should clearly agree on the penalty amount and the deadline for the buyer to pay the penalty to the seller. Regarding penalty amounts, the law allows the parties to agree on the penalty amount for regular civil contracts, while for commercial contracts, the maximum penalty is 8% of the value of the breached contractual obligation.
Regarding late payment interest, Article 306 of the 2005 Commercial Law and Resolution No. 01/2019/NQ-HDTP do not specify a maximum interest rate for late payments. However, the 2015 Civil Code allows the parties to agree on a late payment interest rate, but it cannot exceed 20% per annum. If the parties agree on a higher rate, the court may only accept an interest rate of 20% per annum or determine a new rate based on Resolution No. 01/2019/NQ-HDTP, which is the average overdue debt interest rate on the market from at least three commercial banks with branches or offices in the province or city where the court is resolving the case.
Therefore, the seller should only stipulate a maximum late payment interest rate of 20% per annum on the overdue amount owed by the buyer.
2. Disputes Related to Obligations to Accept Goods
The obligation to accept goods is stipulated in Article 56 of the 2005 Commercial Law, which states that upon receiving goods, the buyer must take reasonable steps to assist the seller in delivering the goods, including assisting with delivery procedures, providing transportation instructions, and helping with unloading the goods. If the seller delivers the goods as per the contract and the buyer fails to accept them, it constitutes a breach of contract, subjecting the buyer to penalties as agreed upon or as stipulated by law. The parties may agree in the contract that the buyer must bear any costs the seller incurs to store the goods if the buyer breaches the obligation to accept them; the seller may have the right to sell the goods to a third party, and the buyer must pay the difference if the third-party sale price is lower than the contract price; the buyer may also face penalties for failing to accept the goods, etc.
The above is the article “Disputes Arising from the Buyer’s Breach of Obligations in Sales Contracts” that TNTP sends to our readers. If you have any questions, please contact TNTP for timely assistance.
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