Delivery. How not to make a mistake and get paid for the goods

In this article we will tell you, how to repudiate the supply contract and highlight the reasons that may prevent you from doing so.

In this article we will tell you how to repudiate the supply contract and highlight the reasons that may prevent you from doing so. Also, we will talk about the experience of the last three years shows that these solutions work and help suppliers to successfully recover payment for delivered goods. We will highlight the issues with examples from practice on current problematic issues.

Let’s first consider what typical mistakes a buyer can make when executing a supply contract.

The supplier refused to transfer the goods on time. If the supplier did not transfer the goods at all for the buyer is a reason to repudiate the supply contract, even if the agreed delivery date, data on the invoice, specification.

— clause 1 of Art. 463 of the Civil Code

— The Decree of the Moscow District Court of 27.01.2022 in case No. A41-40127/2021

— Resolution of the Arbitration Court of the Volga District of 21.05.2021 in case No. A55-18503/2020

If there is no agreed term, the buyer may repudiate the supply contract only if there is a written demand to deliver the goods.

— Ruling of the AS of the North Caucasus District from 14.08.2019 in case No. А53-32742/2018

The supplier will have 7 days to do this, if he does not do it, the buyer has the right to repudiate the supply contract.

— Art. 314 of the Civil Code

Having refused, the buyer has the right to return the advance payment.

— clause 3 Art. 487 Civil Code

— Claim a penalty or interest under Art. 395 of the Civil Code.

Customer’s mistakes

A common mistake of the buyer is that he does not try to collect the goods or demand it from the supplier, and immediately refuse the contract, when it has a condition of self-removal or there are no delivery terms at all.

For example, there was a condition of self-removal by the buyer, it was fixed in the invoice, where the supplier indicated the availability of goods in the warehouse. Delivery terms were not fixed. However, the buyer did not come for the goods and afterwards demanded from the supplier the amount and interest under art. 395 of Civil Code. The courts denied the claims by transferring the payment, the buyer agreed to the condition to take the goods himself.

— The Decree of the Arbitration Court of the Volga District of 13.02.2020 in case No. A65-13431/2019 did not provide documents to the goods.

If the buyer has not received documentation to the goods, then the contract can be canceled only after its request from the supplier.

— Decision of the Supreme Court of 06.02.2018 in case No. A40-178214/2016

The main sense of it is to give the supplier an opportunity to hand over the documentation within a reasonable period of time.

— Art. 464 of the Civil Code

It is important to make sure that such documentation is necessary for the use of the goods (e.g. technical passport, declaration of conformity, instructions).

— clause 2 Review of judicial practice, approved by the Presidium of the Supreme Court on 10.06.2020.

— decision of the cassation arbitration court of 19.03.2021 in case No. A32-49769/2019

Mistakes of buyers:

A) Refuse to pay, referring to the failure to receive documentation, although the use of goods is possible without them, and the transfer of documents is not specified in the contract and is not required by law;

— Ruling of the Far Eastern District Court of Arbitration of 21.02.2022 in case No. A04-532/2021

B) Refusal of the contract either by not setting a deadline for the transfer of documents, or by not waiting until the end of this period;

— Decision of the Moscow District Court of Arbitration of 04.03.2020 in case No. A40-165329/2019

— Resolution of the AC Far Eastern District of 11.11.2019 in case No. A73-15501/2018

C) To declare that there are no documents after a long period of time. For example, to request documentation on the car after 2 years is an abuse of the right.

— Resolution of the Arbitration Court of 17.01.2022 in case No. A67-8393/2020

Breach of delivery terms

If the supplier has violated the delivery terms more than once, the buyer has the right to terminate the contract.

For example, the supplier delayed the delivery of the first batch of goods due to production difficulties. Having discussed this problem with the buyer, they agreed on a new delivery date for the second batch. But the supplier missed this date as well. Then the buyer went to court and three courts sided with him. The buyer has achieved the return of the undeveloped advance payment, payment of contractual penalties (until the supplier received a notice demanding the return of prepayment), and from the moment the obligation becomes monetary (after receiving the notice), the court ordered to pay interest on Art. 395 of Civil Code.

— The decision of Court of 02.03.2022 in case № A56-18985/2021

Mistakes of buyers

First of all — the repudiation of the contract before the expiration of the newly established terms.

For example, the supplier missed the deadline, but the parties agreed that at the end of the delivery period the need for the goods falls away, but the buyer has the right to accept the goods after the expiration of the deadline. In our case, the customer was willing to accept the goods before the entire contract expired. But afterwards the buyer unilaterally terminate the contract. The court did not side with the buyer, as the buyer agreed to postpone the deadline.

— Ruling of the North Caucasus District Court of Arbitration of 22.03.2021 in case No. А53-17973/2020

The goods have been delivered with defects

You can only repudiate the supply contract, due to defects, if the defects are substantial.

— Clause 2 Art. 475 of the Civil Code

This may be not only defects, but also non-compliance with the subject of the contract, state all-union standard, specifications. In our case, the buyer noticed that the goods did not correspond to the size specified in the commercial offer. He went to court with a demand for a refund. As his arguments used the conclusion of a specialist, a notice of summoning the supplier to inspect the goods, the three instances recognized the refusal of the contract lawful.

— The Decree of the AC Volgo-Vyatsky District from 13.01.2022 in case No. A17-5079/2020.

Repudiation of the contract can also be, if in an acceptable time is impossible to eliminate the defect.

— Clause 2 paragraph 2 of Art. 523 of the Civil Code

Practice is such that most often this argument is supplemented by a statement of violation of quality requirements.

— Resolution of the Far Eastern District Court of Arbitration of 25.10.2021 in case No. A73-15996/2020

Incomplete goods have been handed over

It will be possible to cancel the contract on the grounds that the goods are incomplete if you first demand that the supplier complete the goods.

— Clause 2 Art. 480 Civil Code

— The Decree of the North-Western District Court of 24.11.2021 in case No. A26-5341/2020

In the case under consideration, transferred four conveyors were not equipped with an electromechanical drive. At the request of the buyer, the supplier did not complete the goods. Since the buyer did not pay for the goods in full, the supplier went to court with a demand for additional payment, but the buyer filed a counterclaim for termination of the contract and the judges sided with the latter, pointing out that the goods do not meet the requirements of the contract.

— Decision of the Tenth AAC of 13.04.2021 in case No. A41-31940/20

Buyer Mistakes

The buyer may make the following mistakes:

A) Fail to demand to complete the goods, or make a demand, but do not wait for its fulfillment and withdraw from the contract;

B) Not reacting to the fact that the supplier has not completed the goods.

For instance, the supplier provided an ice maker, but the buyer discovered that an ice storage chamber had not been delivered and demanded that it be handed over. The supplier failed to do so and demanded payment. The courts sided with the supplier, reasoning that the buyer, having demanded the missing part of the kit from the supplier, did not offer the supplier to take back the camera. This means that the buyer decided to dispose of the goods in this way and he has an obligation to pay for the goods.

— Ruling of the North Caucasus District Court of Arbitration of 27.11.2019 in case No. A32-26840/2018

For the supplier there is a reverse right — to receive payment for the goods. Let’s analyze, how the supplier can protect himself from not receiving funds.

Provide that the stamp on the primary documents replaces the signature and power of attorney

If the contract specifies that the buyer’s stamp on delivery notes or UPDs replaces the signature and power of attorney, it will have legal effect.

— Decisions of the North-Western District Court of 12.01.2023 in case No. A05P-44/2022, 14.12.2022 in case No. A56-24292/2020.

For example, if the contract states that the buyer’s stamp on the invoices replaces the signature and power of attorney, the courts recognize that the goods were received by the buyer, even if the signatures on the documents are illegible or affixed by unauthorized persons. This was confirmed in a case, where the supplier handed over the goods, but the buyer refused to pay, claiming that the invoices bore the signatures of unauthorized persons. The courts took into account the condition of the contract on the seal and recovered payment, referring to the presence of the seal of the buyer, which under the contract is sufficient proof of receipt of goods, even if it was accepted and executed by persons without power of attorney.

— Decree of the Second AAC of 29.04.2022 in case No. A31-6729/2021

Judicial practice confirms the opinion of our office. Courts in 85% refer to Art. 182 of the Civil Code and indicate that the seal confirms the authority of the setting.

Include a clause to the contract that only persons with original powers of attorney accept the goods

It is recommended to include a condition that the supplier only transfers the goods to persons who have original powers of attorney from the buyer. This will help reduce the risk of receiving the goods by unauthorized persons who can use this in their favor to refuse payment. Another option is to include in the annex to the contract the names of the buyer’s representatives who are authorized to receive the goods and execute the documents. However, for these terms to work, the employees who ship goods to the counterparties must be informed to request original powers of attorney.

The buyer denied receiving the goods, but the court found that the documents signed by the buyer’s manager under a power of attorney confirmed the transfer of the goods. Since the buyer did not claim falsification of signatures and seals, it means that the goods were delivered and must be paid for.

— Resolution of the Moscow District Court of Arbitration of 16.11.2021 in case No. A40-173450/2020

Finally, if the buyer declares that the power of attorney is falsified and the expertise confirms it, there is a risk that the supplier will no longer be able to achieve payment.

— Resolution of the Arbitration Court of the Urals District of 23.11.2021 in case No. A76-559/2020

Only give goods, if the delivery notes bear the buyer’s stamp and signature.

It is important for the supplier to explain to all its employees responsible for transferring goods to counterparties that they should not release goods until they receive documents with the buyer’s stamp, signature and transcription. There is a big problem with receiving payment for goods, because the invoices do not have the buyer’s stamp and signature. As a result, the supplier cannot confirm the fact of delivery and, accordingly, to receive payment.

— The Decree of the North Caucasus District Court of 12.01.2022 in case No. A32-5397/2021.

— Resolution of the Arbitration Court of the Volga District of 03.06.2021 in case No. A65-18868/2020.

If the documents have the signature and seal of the buyer, it is already enough to confirm that the goods must be paid. An example of such an argument is the situation, when the supplier demanded to recover debt for goods. The court upheld it, as delivery notes with the seal and signature of the buyer confirms the fact of delivery.

— The Decree of the Central District Court of 16.11.2022 in case No. A14-18366/2021

If the buyer claims that its stamp was lost or the impression is falsified, such arguments will have no effect. In the case, where the buyer claims that only the signature is falsified, it will also not help to prove that the goods were not received.

— Ruling of the Central District Court of Arbitration of 23.01.2023 in case No. A83-17283/2020

Establish a procedure and deadline for employees to organize debt collection for goods

To avoid missing the statute of limitations and not being left without payment, it is recommended to develop a local act that defines the procedure for debt collection and appoints responsible employees for monitoring non-payment of deliveries and conducting reconciliations. The local act can be formalized in the form of an instruction on collection of receivables. It is important to establish clear deadlines, when an employee must prepare a claim and file a lawsuit to avoid the risk of missing the three-year statute of limitations.

— The Decree of the Central District Court of 29.07.2022 in case No. A68-5688/2019

— Decision of the North-Western District Court of 30.09.2022 in case No. A56-56338/2021

— Resolution of the Arbitration Court of the Volga District of 01.11.2022 in case No. A06-1974/2022

The supplier failed to receive payment for the goods, as more than three years passed from the date of disputed deliveries and signing of the reconciliation act before the appeal to the court.

— Resolution of the Moscow District Court of Arbitration of 28.12.2022 in case No. A40-63020/2022

So, to make mistakes and thereby risk the process of delivery, which is important to be systematic, is quite simple. Observing these rules of «legal hygiene» in the execution of the supply contract, you can significantly reduce the chance of problems in the legal field.