A Contract for Goods Intended for Household Use Is a Sale Contract, Not a Supply Contract
⚖️ Ukraine | Contract Law | Sale of Goods | Non-Delivery
Case Details
Case No.: 752/16778/22
Proceedings No.: 61-18189св23
Court: Supreme Court, First Judicial Chamber of the Civil Cassation Court
Decision Date: 20 March 2024
Case Category: Contract Law
Subject Matter: Distinction Between Sale and Supply Contracts
Sub-Subject: Advance Payment / Non-Delivery / Termination / Interest
Parties: Individual buyer and individual entrepreneur
Goods: Swimming pool intended for household use
Contract Form: Oral
Advance Payment: EUR 3,500
Delivery Period: Not agreed by the parties
Key Issue: Whether an agreement between an individual and an individual entrepreneur for prepaid goods intended for household use constitutes a supply contract or a sale contract, and what consequences follow where the seller fails to deliver the goods
Outcome: The Supreme Court classified the parties’ agreement as an oral sale contract rather than a supply contract. Because the goods were not delivered, including within seven days after the buyer’s demand, the contract was terminated and the seller was required to return the advance payment with interest.
Background of the Dispute
An individual agreed with an individual entrepreneur to purchase a swimming pool for household use.
The parties did not execute a detailed written contract. Their agreement was made orally, and on 10 November 2020 the buyer paid the entrepreneur EUR 3,500.
The payment was evidenced by a receipt issued by the entrepreneur stating that EUR 3,500 had been received “for the swimming pool”.
The parties had not agreed a specific period within which the swimming pool was to be transferred to the buyer.
The seller subsequently failed to provide the goods.
The buyer therefore made a written demand requiring the seller to deliver the swimming pool within seven calendar days. The demand was based on the statutory mechanism applicable where an obligation does not contain an agreed period for performance.
The goods were still not delivered.
The buyer commenced proceedings seeking termination of the agreement, repayment of the money paid and interest.
Was This a Supply Contract or a Sale Contract?
One of the central issues considered by the Supreme Court was the correct legal classification of the parties’ relationship.
The buyer had characterised the agreement as a supply contract.
The Supreme Court, however, agreed with the first-instance court that the parties had entered into an oral contract of sale.
The distinction was not merely terminological.
Ukrainian law differentiates between an ordinary contract of sale and a supply contract according, among other things, to the purpose for which the goods are acquired.
Under Article 712 of the Civil Code of Ukraine, a supplier carrying out entrepreneurial activity undertakes to transfer goods to a buyer for use in entrepreneurial activity or for other purposes not connected with personal, family, household or similar use.
That element was absent in this case.
Household Purpose Was Critical to the Classification
The buyer was an individual.
The seller was an individual entrepreneur.
However, the mere fact that the seller had entrepreneurial status did not transform the transaction into a supply contract.
The purpose for which the buyer acquired the goods was critical.
The swimming pool was intended to be installed at the buyer’s household and used for personal or domestic purposes. It was not acquired for entrepreneurial or other commercial activity.
The Supreme Court therefore concluded that the legal relationship did not fall within the concept of a supply contract under Article 712 of the Civil Code.
It was instead governed by the rules applicable to a contract of sale.
This distinction is practically important because the legal classification of a transaction follows from the substance and purpose of the relationship rather than simply from the commercial status of one of the parties or the terminology subsequently used in litigation.
The Absence of a Written Contract Did Not Prevent the Sale Contract From Existing
The fact that the agreement had been made orally did not prevent the Court from recognising the contractual relationship.
Under Article 639 of the Civil Code of Ukraine, a contract may generally be concluded in any form unless legislation establishes a mandatory form for the particular type of contract.
The buyer had also produced documentary evidence confirming the transaction.
The receipt showed that the entrepreneur had received EUR 3,500 “for the swimming pool.”
The seller did not deny receiving that amount.
Accordingly, the Supreme Court accepted the first-instance court’s conclusion that the parties had entered into an oral sale contract.
The oral nature of the transaction was therefore relevant to establishing the contractual relationship, but it did not alter its substantive classification as a sale of goods intended for household use.
What Happens Where No Delivery Date Is Agreed?
The parties had not established a specific deadline for delivery of the swimming pool.
That did not give the seller an unlimited period in which to perform.
The Civil Code provides a mechanism for precisely this situation.
Under Article 530(2) of the Civil Code of Ukraine, where an obligation does not specify a period for its performance, or where that period is determined by the creditor making a demand, the creditor may require performance at any time.
The debtor must then perform the obligation within seven days from the date of the demand, unless an obligation of immediate performance follows from the contract or legislation.
The buyer relied on this mechanism.
She submitted a written demand requiring the entrepreneur to deliver the swimming pool within seven calendar days.
The seller failed to do so.
Failure to Deliver Within Seven Days Constituted Non-Performance
The seven-day period became important because the original agreement contained no contractual delivery date.
Once the buyer made the demand, the statutory mechanism supplied the relevant period for performance.
The seller therefore had an opportunity to perform the obligation even though the parties had not originally agreed a delivery date.
The goods were nevertheless not transferred to the buyer.
The Supreme Court accordingly accepted that the seller had failed to perform the obligation arising from the sale contract.
The case demonstrates why the absence of an agreed contractual deadline does not necessarily prevent a buyer from establishing default.
Where Ukrainian law permits performance to be demanded under Article 530, the demand can trigger a legally relevant period within which the debtor must perform.
The Buyer Could Seek Termination of the Contract
The Supreme Court also considered the consequences of the seller’s failure to deliver.
Article 651 of the Civil Code permits judicial termination of a contract in circumstances including a material breach by the other party.
A breach is material where the damage caused by the breach substantially deprives the other party of what that party expected to receive when entering into the contract.
Here, the buyer had paid the agreed amount but had not received the swimming pool.
The seller also failed to deliver after receiving the buyer’s subsequent demand.
The Supreme Court therefore agreed with the first-instance court that there were grounds to terminate the sale contract.
The Advance Payment Had to Be Returned
Termination was not the only consequence.
The buyer had already transferred EUR 3,500 to the seller.
Article 693 of the Civil Code specifically addresses situations involving advance payment for goods.
Where the seller receives advance payment but fails to transfer the goods within the required period, the buyer may demand either:
transfer of the goods for which payment was made; or
repayment of the advance payment.
The buyer was therefore not required to continue waiting indefinitely for delivery.
Having paid for goods that were not transferred, she could seek repayment of the amount advanced to the seller.
The first-instance court ordered the entrepreneur to pay UAH 124,760, corresponding to the EUR 3,500 advance payment.
The Supreme Court ultimately reinstated that judgment.
Interest May Accrue on the Advance Payment
The case also provides an important clarification concerning interest payable on an advance payment.
The claimant had relied on Article 625(2) of the Civil Code when seeking three per cent annual interest.
The Supreme Court held that this was not the correct statutory basis for the relevant interest claim.
The applicable provision was Article 693(3) of the Civil Code, read together with Article 536.
Article 693(3) provides for interest on the amount of advance payment from the date on which the goods were required to be transferred until the date on which the goods are actually transferred or the advance payment is returned.
This distinction is important when formulating claims arising from non-delivery of prepaid goods.
The legal basis for interest depends on the nature of the monetary relationship. A claim involving repayment of an advance payment should therefore not automatically be treated in the same way as an ordinary overdue monetary debt.
The Court of Appeal Had Taken a Different Approach
The Court of Appeal had overturned the first-instance judgment.
It considered that the evidence did not sufficiently establish the contractual relationship alleged by the buyer, including because the receipt did not contain a detailed specification of the goods.
The Supreme Court disagreed.
The receipt expressly recorded payment of EUR 3,500 “for the swimming pool”, and the seller admitted receiving the money.
The seller argued that the payment concerned a different relationship involving construction works, but the Supreme Court concluded that this alternative explanation had not been sufficiently established.
The Supreme Court therefore found that the appellate court had incorrectly rejected the buyer’s case.
Although this evidential issue was relevant to the result, the broader doctrinal significance of the judgment lies in the Court’s classification of the transaction and its analysis of the consequences of non-delivery.
The Supreme Court’s Decision
The Supreme Court allowed the buyer’s cassation appeal.
It set aside the judgment of the Kyiv Court of Appeal dated 22 November 2023 and reinstated the judgment of the Holosiivskyi District Court of Kyiv dated 9 May 2023.
As a result:
the parties’ agreement was treated as an oral contract of sale;
the contract was terminated;
the seller was required to return UAH 124,760, corresponding to the EUR 3,500 advance payment; and
UAH 615.25 in interest was awarded.
The Supreme Court’s decision was final.
Why This Decision Matters
The judgment provides a useful explanation of the distinction between sale contracts and supply contracts under Ukrainian law.
The fact that the seller is an entrepreneur does not, by itself, make an agreement a supply contract.
The purpose for which the goods are acquired is important.
Where an individual purchases goods from an entrepreneur for personal, family or household use, the relationship may constitute a sale rather than a supply contract.
Conversely, Article 712 is directed toward transactions in which goods are transferred for entrepreneurial activity or other purposes unrelated to personal, family or household use.
The correct classification matters because it determines which statutory rules govern the relationship and the remedies available when the agreement is breached.
No Delivery Date Does Not Mean No Remedy
The second important aspect of the judgment concerns contracts that do not specify when the seller must perform.
An incomplete agreement does not necessarily leave the buyer without an enforceable remedy.
Where the period for performance has not been established, Article 530 of the Civil Code may permit the buyer to make a demand that triggers the debtor’s obligation to perform within seven days.
This creates a practical mechanism for establishing default.
The sequence may therefore be:
no contractual delivery date → buyer makes demand → seven-day statutory period → seller fails to deliver → remedies for non-performance become available.
This can be particularly relevant in transactions documented only by invoices, receipts, correspondence or other relatively informal arrangements.
Consequences of Non-Delivery of Prepaid Goods
The judgment also illustrates that several legal consequences may arise from the same failure to deliver.
Depending on the circumstances, the buyer may have grounds to:
demand delivery of the goods;
demand repayment of the advance payment;
seek termination of the contract; and
claim applicable interest on the advance payment.
The legal basis for each remedy should be identified separately.
In particular, the Supreme Court’s treatment of interest demonstrates that Article 693(3), rather than a general claim under Article 625(2), may govern interest on an advance payment made for goods that were never delivered.
Why This Is Relevant to Foreign Clients
For foreign companies and individuals contracting in Ukraine, the case demonstrates why the legal classification of an agreement should not be determined solely by its title.
Ukrainian courts may examine:
the status of the parties;
the nature of the goods;
the purpose for which they were acquired;
the agreed method of payment;
whether a delivery period was established;
the parties’ subsequent conduct; and
the actual substance of the transaction.
The distinction can become particularly important where a foreign individual purchases property or goods in Ukraine from a Ukrainian entrepreneur, or where a transaction has been documented informally.
It also illustrates the importance of making a formal demand where the contract does not specify a performance deadline.
Lions Lawyers’ Analysis
The principal significance of this judgment lies in the combination of contract classification and remedies for non-performance.
First, the Supreme Court confirms that the legal distinction between a sale and a supply contract is substantive.
The entrepreneurial status of the seller is insufficient by itself to characterise the transaction as a supply contract. Where an individual purchases goods for household use, the transaction falls within the sale framework rather than Article 712’s commercial supply model.
Second, the absence of an agreed delivery date does not make the seller’s obligation indefinite. Article 530 provides a mechanism through which the buyer can demand performance and trigger the seven-day period.
Third, once the seller fails to deliver prepaid goods within the applicable period, the buyer may move from demanding performance to remedies including termination and recovery of the advance payment.
Finally, the judgment demonstrates the importance of identifying the correct statutory basis for ancillary monetary claims. Interest on an advance payment for undelivered goods is governed by the specific mechanism under Article 693(3), read together with Article 536, rather than automatically by the general rules applicable to overdue monetary obligations.
For contract drafting, the better approach remains to define expressly the nature of the transaction, goods, intended use where relevant, delivery deadline, consequences of delay, advance-payment regime and termination rights. The statutory rules become particularly important when the contract leaves these matters unresolved.
Lions Lawyers advises Ukrainian and international clients on contractual disputes in Ukraine, including sale and supply agreements, non-delivery of goods, advance payments, termination, contractual classification and cross-border transactions. We provide full-service legal representation as well as standalone Ukrainian-law opinions for foreign businesses, individuals and international counsel assessing contractual rights and remedies in Ukraine.
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