When the creditor is in default

A creditor’s default has several legal consequences. A creditor in default cannot rescind the contract in or out of court because the creditor is not the party duly performing it (civil case No. 4792/2007, Second Civil Division of the Supreme Court of Cassation). Nor may the creditor invoke the defence of non-performance. Under Article 96(1) of the Obligations and Contracts Act, the risk of subsequent loss of the thing passes to the creditor, and the debtor is relieved of the adverse effects of the debtor’s own delay: for example, interest ceases to accrue against the debtor. The debtor remains liable only for intent or gross negligence and may recover necessary expenses incurred because of the delay, such as storage charges for goods the creditor has not taken. A consequence directly relevant to the dispute discussed is the debtor’s right to obtain discharge under Article 97 of that Act, read with Article 328 of the Commerce Act. If the obligation is to deliver a thing, the debtor may ask the district court at the place of performance to designate a suitable place to deposit it for safekeeping. The debtor may choose whether to use Article 97(1); if not, the obligation to deliver remains.

Article 328(1) of the Commerce Act similarly provides several options where a buyer delays taking delivery. The seller may deposit the goods for safekeeping or sell them at market prices or by public auction after notifying the buyer and communicating the time or place of the sale or auction. Perishable goods may be sold without advance notice to the buyer.

Conversely, where it is the debtor who is late delivering goods, the creditor can sue for specific performance and ask the court to order the seller or supplier to deliver the item purchased or ordered. The debtor has no corresponding action where the creditor is late taking delivery. This distinction reflects the allocation of rights and duties between the parties to a sale.

If you need advice on a civil or commercial law matter, consult a qualified lawyer.