In the process of entering into and performing the contract, issues related to payment such as payment terms, and method of payment are necessary matters of the parties. However, it is not always the case that the party obligated to pay also makes the payment in accordance with the agreement previously agreed. The delayed payment in the performance of the contract will give rise to certain legal consequences, including right to claim interest on delayed payment. Who has the right to claim an interest in case the obligor is late for payment? Here is our answer on this matter.
1. Interest due to delayed payment
- Interest due to delayed payment is the interest arising that the contract-breaching party must pay to the aggrieved party when the payment term is due but the contract-breaching party fails to perform the payment obligation as agreed;
- The obligation to pay arises from the agreement of the parties in the contract and from the provisions of law. Accordingly, when one party participates in the purchase, sale, and use of services, this party will be obliged to pay the other party an amount previously agreed upon, in case there is no agreement or unclear agreement on the amount to be paid, the amount to be paid will be determined according to the market price at the time the parties enter into and perform the contract;
- In case the parties have agreed on the payment term but the party obligated to pay does not make payment on time, the other party will have the right to demand the party that has not performed the payment obligation to pay interest for delayed On the other hand, in case the parties do not have an agreement on the payment term, then the payment term will be determined from when the obligee notifies the obligor within a reasonable period of time.
2. Right to claim interest on delayed payment
According to the provisions of Article 306 of the Commercial Law 2005, amended and supplemented in 2019, the right to claim interest on delayed payment is determined as follows:
- About the entity: The entity that has the right to claim interest on delayed payment is the party in breach of the contract. In case the aggrieved party authorizes another individual or organization to exercise the right to claim interest on delayed payment on his/her behalf, then that individual or organization will be identified as the entity of this right.
In case the aggrieved party being an individual dies, the heir of this party has the right to claim interest on delayed payment of the breaching party from the time of opening the inheritance as prescribed in Article 614 of the Civil Code 2015.
People entitled to claim delayed payment interest are the heirs of the aggrieved party under the will or at law.
- About the basis of arising: The contract-breaching party is late in paying the goods or paying the service fee and other reasonable expenses due to the aggrieved party. Late payment of goods, service fees, and other reasonable expenses is understood as the aggrieved party’s failure to make the payment on time as agreed by the parties in the contract.
For example, Limited Liability Company A signed a contract to buy 300 tons of rice from Joint Stock Company B for 255.3 million. The parties agree that the payment term is after 30 days from the date of delivery by Party B. However, on the 60th day, company A still has not paid party B. In this case, party A has breached the contract and delayed payment to party B by 30 days compared to the previously agreed payment time limit.
Other reasonable expenses are expenses that the aggrieved party has spent to ensure the performance of the contract and the legitimate rights and interests of the parties. Which can be mentioned such as the cost of buying raw materials, materials, allowances, and bonuses … Interest due to delayed payment is the right of the aggrieved party, so the breaching party will only have to pay the amount of interest when the aggrieved party request.
- Delayed payment interest rate: is the interest rate calculated on the delayed payment principal amount according to the market average overdue debt interest rate at the time of payment corresponding to the delayed payment period, unless otherwise agreed or otherwise provided by law.
Principally, the parties will have the right to agree on the interest rate due to delayed payment, however, the interest rate must not exceed the rate specified in Clause 1, Article 468 of the Civil Code 2015. In case the parties do not agree on interest on delayed payment, the delayed payment interest rate is calculated according to the average overdue debt interest rate in the market specified in Article 11 of Resolution 01/2019/NQ – HDTP, the average overdue debt interest rate in the market is determined by the overdue interest rate of at least 03 commercial banks whose headquarters, branch or transaction office is located in the same province or central-affiliated city where the headquarters of the Court in charge of the case is located at the payment date. The amount of interest due to delayed payment will be determined at the time of payment and corresponds to the period of delayed payment. The delayed payment time will be based on the agreement of the parties on the payment term in the contract.
In the above example, the Limited Liability Company A was 30 days delayed in paying to the Joint Stock Company B, in this case, 30 days will be determined as the delayed payment period.
Above is the post “Right to claim interest on delayed payment under the provisions of Commercial Law”. We hope this post was useful to you.