If the Buyer Has Received the Goods but Failed to Pay, the Seller Should Claim the Purchase Price — Not Terminate the Contract
⚖️ Ukraine | Commercial Disputes | Contract Law | Sale of Goods
Case Details
Case No.: 916/667/18
Proceedings No.: 12-145гс19
Court: Supreme Court, Grand Chamber
Decision Date: 8 September 2020
Case Category: Commercial Disputes / Contract Law / Corporate Rights
Subject Matter: Sale of Goods / Non-Payment of Purchase Price / Proper Remedy
Sub-Subject: Sale of Corporate Interest / Recovery of Purchase Price / Interest for Use of Funds / Termination of Contract / Evidence of Payment
Claimant: Individual seller
Defendants: Individual purchasers and Invest-Kurort-1 LLC
Key Issue: Whether a seller who has transferred the goods to the buyers but alleges that the purchase price remains unpaid may seek judicial termination of the sale agreement, or whether the proper remedy is a claim for the unpaid purchase price and interest
Supreme Court Position: Where the buyer has accepted the goods but has failed to pay for them, Article 692(3) of the Civil Code applies. The seller may claim payment of the purchase price and interest for the use of another person’s funds. Judicial termination of the sale agreement is not the proper remedy for that particular breach.
Outcome: The Grand Chamber allowed the purchasers’ cassation appeal, reversed the lower courts in the part in which the claims had been granted, and issued a new decision dismissing those claims. Вставлений текст
Background of the Dispute
The dispute concerned the sale of corporate interests in Invest-Kurort-1 LLC.
Before the transaction, the claimant owned a 60% interest in the company’s share capital. Another participant owned a further 20% interest.
On 3 June 2016, the parties entered into a notarised sale agreement under which an aggregate 80% interest in the company was transferred to three purchasers.
The claimant transferred her 60% interest: 40% to one purchaser and 20% to another. The nominal value attributed to her transferred interest was UAH 4,140,000.
The sale agreement stated that the total price of the 80% interest was UAH 5,520,000 and expressly recorded that the sellers had received the relevant amounts in full before execution of the agreement and had no payment claims against the purchasers.
The claimant subsequently maintained that, despite this contractual wording, she had never actually received the UAH 4,140,000 due for her 60% interest.
She therefore sought, among other remedies, termination of the sale agreement and reversal of the corporate consequences of the transaction.
The first-instance and appellate courts accepted that the purchasers had failed to prove payment and concluded that the absence of payment constituted a material breach justifying termination of the agreement under Article 651 of the Civil Code.
The Grand Chamber of the Supreme Court took a different approach.
The Civil Code Provides a Specific Remedy for Non-Payment under a Sale Agreement
The Grand Chamber began by distinguishing the general rules governing termination of contracts from the specific remedies applicable to sale agreements.
Article 651 of the Civil Code permits judicial termination in cases of material breach. However, Chapter 54 of the Civil Code contains specific provisions governing sale transactions and the remedies available to a seller where the buyer fails to perform.
That distinction was decisive.
The Court held that the appropriate remedy depends on what exactly the buyer has failed to do.
Where a buyer refuses both to accept and to pay for the goods, Article 692(4) gives the seller a choice: the seller may demand payment or withdraw from the sale agreement.
The position is different where the buyer has already received the goods.
A Seller May Withdraw Where the Buyer Refuses Both to Accept and Pay for the Goods
The Grand Chamber explained the rationale behind Article 692(4).
If the buyer refuses to accept the goods and also refuses to pay for them, the buyer has effectively demonstrated a loss of interest in performance of the transaction.
The seller still possesses the goods and may therefore also lose interest in continuing the transaction. The seller can dispose of the goods elsewhere, including by selling them to another purchaser.
In those circumstances, Ukrainian law permits the seller either to insist upon performance by demanding payment or to withdraw from the contract.
Importantly, the Court explained that this form of termination is connected with a unilateral act of the seller, rather than with judicial termination of the contract.
The position changes fundamentally once the buyer has accepted the goods.
If the Buyer Has Received the Goods but Failed to Pay, Article 692(3) Applies
In the case before the Grand Chamber, the purchasers had already received the subject matter of the sale — the interests in the share capital of the company.
The alleged breach was therefore not a refusal to accept the goods.
It was non-payment for goods that had already been transferred and accepted.
The Grand Chamber held that this situation falls within Article 692(3) of the Civil Code.
Under that provision, where the buyer delays payment for goods, the seller is entitled to demand:
payment of the purchase price; and
interest for the use of another person’s funds.
The provision does not give the seller a choice to substitute judicial termination of the contract for those remedies.
The Court therefore connected the appropriate remedy directly to the nature of the violated right.
If the seller's right has been infringed because the seller has not received the money due for goods already transferred, the remedy that directly protects that right is a claim for recovery of the unpaid purchase price.
Judicial Termination Does Not Correspond to the Nature of the Breach
The Grand Chamber considered judicial termination inappropriate where the seller has already transferred the goods and the buyer has accepted them, but payment remains outstanding.
The underlying breach is monetary.
The seller expected to receive the agreed purchase price and did not receive it. The remedy should therefore address that monetary loss directly.
The Court also observed that non-payment does not necessarily result from a deliberate attempt by the buyer to avoid its obligations. A payment dispute may arise from a genuine disagreement concerning the amount due or the parties’ mutual accounts.
Termination could therefore produce consequences disproportionate to the actual breach.
This was particularly relevant where the transaction had already been partly performed by both parties: the seller had transferred the goods and the buyer had accepted them.
Termination Could Produce Unjustified Economic Consequences
The Grand Chamber identified another practical problem with termination.
If the value of the transferred asset has subsequently increased — including because the purchaser has improved it — a seller could potentially use termination not simply to protect its right to receive payment but to recover an asset that has become substantially more valuable.
The remedy could therefore produce an economic result unrelated to the original infringement.
This demonstrates why the remedy must correspond to the substance of the violated right.
Where the infringement consists of failure to pay money, recovery of the money ordinarily provides the direct remedy.
Recovery of the Purchase Price Provides Effective Protection
The Grand Chamber also considered enforcement.
A judgment requiring payment of the outstanding purchase price can fully restore the seller’s infringed monetary right.
If necessary, enforcement measures may be taken against the purchaser’s assets. Where the goods originally transferred remain with the purchaser, those assets may themselves potentially become subject to enforcement measures and their value used to satisfy the seller’s monetary claim.
By contrast, attempting to reverse the transaction can create considerably greater complications.
The transferred asset may already have been disposed of to a bona fide third party. In such circumstances, terminating the original agreement may not enable the seller to recover the asset from that third party.
The Grand Chamber therefore regarded the statutory remedy under Article 692(3) as both legally appropriate and capable of providing effective protection of the seller's right.
The Seller May Also Claim Interest for Late Payment
Article 692(3) does not limit the seller to recovery of the principal purchase price.
The seller may also claim interest for the use of another person’s funds.
The Grand Chamber explained that, in this context, “use of another person’s funds” refers to the buyer’s delay in performing a monetary obligation: the buyer is required to pay but unlawfully retains the money instead.
The resulting liability is governed by Article 625 of the Civil Code.
The Court characterised this liability as a mechanism protecting the creditor's proprietary interests by compensating for losses associated with improper performance of a monetary obligation.
Accordingly, a seller confronted with non-payment after delivery is not limited to recovering the nominal amount of the unpaid purchase price.
The Contractual Statement That Payment Was Received Was Itself Evidence
The judgment also contains an important evidential conclusion.
The sale agreement expressly stated that the sellers had received the purchase price in full before signing.
The lower courts considered that this contractual provision did not replace separate documentary evidence of payment.
The Grand Chamber disagreed.
It distinguished between a contract as a legal transaction and the document containing the contract. A contractual document may contain not only contractual terms but also factual statements capable of serving as evidence.
The Grand Chamber held that the clause recording receipt of the money constituted written evidence of payment. In the circumstances of the case, it could also operate as a receipt.
This did not mean that such a contractual statement was irrebuttable.
A party could seek to disprove it with other evidence, including evidence that the relevant statement had been made as a result of mistake, fraud, violence or other circumstances affecting its reliability.
The significant point is that a contractual acknowledgement of receipt of money cannot simply be disregarded because no separate receipt or payment document exists.
The Supreme Court Rejected Judicial Termination as the Proper Remedy
The Grand Chamber ultimately concluded that the claimant had selected an improper remedy.
Her alleged infringement consisted of failure to receive payment for an asset that she had already transferred and the purchasers had accepted.
The appropriate claim was therefore one seeking recovery of the unpaid purchase price and the applicable interest.
Judicial termination of the sale agreement did not correspond to the nature of that infringement.
The Grand Chamber consequently reversed the lower courts' decisions insofar as they had granted the claimant's demands and dismissed those claims.
Why This Decision Matters
The judgment establishes an important distinction for sale-of-goods disputes under Ukrainian law.
The remedies available to a seller depend not merely on the fact that the buyer has failed to pay, but also on whether the buyer has accepted the goods.
Where the buyer refuses both acceptance and payment, the seller may have a statutory right to withdraw from the transaction.
Where the buyer has already received the goods but fails to pay, the seller should ordinarily pursue the monetary remedies specifically provided by Article 692(3): recovery of the purchase price and interest.
The distinction is relevant not only to conventional sales of movable goods. In this case, the “goods” were corporate interests in a Ukrainian limited liability company, and the general Civil Code rules on sale applied to their transfer.
The decision is therefore particularly relevant to:
sale and purchase agreements;
transfers of shares and corporate interests;
deferred-payment transactions;
unpaid purchase prices;
post-completion payment disputes;
contractual acknowledgements of payment; and
disputes concerning the appropriate remedy following partial performance of a contract.
Lions Lawyers’ Analysis
The practical significance of this judgment lies in the requirement to match the remedy to the precise contractual breach.
A seller who has transferred the asset but has not received the purchase price may instinctively seek to reverse the transaction and recover the asset. The Grand Chamber's approach shows that this will not necessarily be available merely because non-payment is serious or even complete.
Once the purchaser has accepted the goods, the specific statutory regime governing sale agreements becomes critical. The seller's primary remedy is directed at the unpaid monetary obligation: recovery of the purchase price together with the financial consequences of delayed payment.
The judgment is also important for transactional drafting. A statement in a sale agreement that the purchase price has already been received is not merely boilerplate. It may itself constitute written evidence of payment and, depending on its wording, operate as a receipt. Parties should therefore avoid contractual confirmations of payment that do not accurately reflect the actual settlement mechanics.
For transactions involving corporate interests, shares, real estate or other substantial assets, the payment provisions should clearly identify the amount, timing and method of payment and should be supported by appropriate documentary evidence. Where payment is deferred until or after completion, the seller should also consider contractual security mechanisms rather than relying on the possibility of subsequently unwinding the transaction.
The broader principle is straightforward: where the seller has performed by transferring the asset and the buyer's remaining breach is failure to pay, litigation strategy should ordinarily focus on enforcement of the monetary obligation rather than reversal of the sale.
Lions Lawyers advises Ukrainian and international clients on commercial contracts and contractual disputes in Ukraine, including sale and purchase agreements, corporate interest transfers, unpaid purchase prices, deferred-payment arrangements, contractual termination, recovery of commercial debt, interest and other consequences of delayed payment, and disputes concerning the appropriate remedies for breach of contract. We provide full-service legal representation as well as standalone legal opinions, enabling clients to assess their contractual position and, where appropriate, identify alternative legal approaches.
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