When is a business entitled to temporarily suspend payment for goods, and what are the key considerations?

The payment obligation is often seen as the end point of a purchase and sale of goods. After receiving the goods, many businesses implicitly think that they must make full and timely payments, and problems related to quality or disputes will be resolved later. However, business practices show that there are many cases where goods have been delivered but do not meet the quality standards, specifications or requirements agreed upon by the parties in the contract.

 

This is not only a legal issue but also an important risk management decision

 

At that time, a question that is often asked is whether the buyer has the right to suspend payments. This is not only a legal issue but also an important risk management decision. If you continue to pay when the goods show signs of non-conformity, you may lose your most effective tool to protect your interests. On the contrary, if the payment is arbitrarily stopped without sufficient legal grounds, the enterprise may be considered a breach of contract and must be responsible for compensation for damages.

Payment is only a consequence of the delivery of the goods in accordance with the contract

The essence of a contract for the purchase and sale of goods is the exchange between goods and money. The buyer's payment obligation and the seller's delivery obligation are two obligations of a reciprocal nature.

However, a fairly common concept in practice is that as long as the seller has physically transferred the goods, the buyer must fulfill the payment obligation. This interpretation does not fully reflect the spirit of the 2005 Commercial Law.

Article 39 of the 2005 Commercial Law stipulates that goods are considered inconsistent with contracts if they do not meet the normal use purpose of goods of the same type, do not meet the specific purpose that the buyer has notified the seller, do not ensure the same quality as samples or are not preserved,  packed in the usual way.

Article 40 of the Commercial Law 2005 further affirms that the seller must be responsible for defects of goods that existed before the time of transferring the risk to the buyer, even if these defects are only discovered after delivery.

Thus, delivery is not only the material transfer of goods but also includes ensuring that goods are in accordance with the commitments in the contract. If the goods do not meet the agreed standards, in essence, the seller's delivery obligation has not been fully fulfilled.

How is the right to suspend payment regulated by law?

Unlike many people think, the right to suspend payment in a goods purchase and sale contract is not only inferred from the principle of reciprocal obligations but also directly regulated by the 2005 Commercial Law.

Article 51 of the 2005 Commercial Law allows the buyer to suspend payment in three specific cases.

The first case is when the buyer has evidence of the seller's cheating.

In fact, deceptive behavior can appear in many different forms such as forging quality certificates, falsely declaring the origin of goods, deliberately concealing product defects or providing untrue technical information to promote the conclusion of contracts.

When there are convincing documents or evidence showing that the seller has committed fraudulent acts, the buyer is entitled to suspend payment to protect its interests. However, subjective suspicion or unverified judgments will not be sufficient to give rise to this right.

The second case is when the goods are the subject of dispute.

This is a common case when disputes arise over the ownership of goods, the origin of goods or disputes between parties over whether the goods meet the standards under the contract or not.

In this case, the buyer is entitled to suspend payment until the dispute is resolved. This regulation is intended to ensure fairness in trade because the buyer should not be forced to pay in full when his or her interests in the goods are still undetermined.

The third case is also the most common case in today's business practice. In case the buyer has evidence that the seller has delivered goods that are not in accordance with the contract , it has the right to suspend payment until the seller remedies such inconsistency.

This is a particularly important regulation because it directly links the seller's right to payment with the fulfillment of the delivery obligation.

If the goods delivered are not of the right type, the wrong design, do not meet the technical standards, do not meet the agreed quality or are not suitable for the purpose of use agreed by the parties, the buyer can completely suspend payment until such errors are remedied.

A lesson from commodity quality disputes

In a recent case, a manufacturing enterprise in Vietnam discovered that the input materials delivered by the supplier showed signs of not conforming to the technical standards previously approved by the two parties.

The initial test results showed that the raw material composition was different from the technical documents. After receiving the notification, the supplier itself also conducts a review and confirms the existence of irregularities related to the shipment.

However, the specific cause, scope of impact and extent of damage still need more time to investigate and assess.

In that context, the purchasing enterprise has chosen the solution of officially notifying the suspension of payment until the investigation process is completed and the parties agree on a handling plan.

From the perspective of Article 51 of the 2005 Commercial Law, this is a relatively appropriate approach because enterprises do not refuse to pay but only temporarily delay payment obligations on the basis that there is evidence that the goods are likely to be inconsistent with the contract.

 

The law does not require the buyer to prove the violation absolutely at the time of suspension of payment

 

To suspend payments, businesses must have authentic evidence

The most notable point of Article 51 of the Commercial Law lies in Clause 4.

According to this regulation, if the buyer suspends payment based on unauthenticated evidence and such suspension causes damage to the seller, the buyer must compensate for the damage and bear the corresponding commercial sanctions. This shows that the right to suspend payment is not an absolute right, but a conditional right.

The law does not require the buyer to prove the violation absolutely at the time of suspension of payment. However, the buyer must have objective and reasonable grounds to prove that the suspension of payment is carried out on the basis of good faith and has a practical basis.

Therefore, the collection of evidence is especially important. Test results, inspection results, technical reports, work minutes, e-mails exchanged between the parties or confirmations from the supplier themselves are often documents of high value in these types of disputes.

Suspension of payment does not mean rejection of payment

In fact, many businesses still confuse payment suspension and refusal to pay.

Suspension of payment means that the buyer has not fulfilled the payment obligation within a certain period of time to wait for the verification of the violation or wait for the seller to correct the error. This amount can still be paid after the dispute is resolved.

Meanwhile, refusal to pay is the buyer's affirmation that he will not pay that amount. This is a much more serious measure and should only be applied when there is a really solid legal basis.

This distinction is particularly important because in many cases, the misuse of terminology or the unclear expression of views in written exchanges has led to significant disadvantages when disputes are brought to arbitration or court.

What do businesses need to do before deciding to suspend payment?

When detecting goods with signs of non-conformity with the contract, enterprises need to prioritize the preservation of evidence. Samples of goods need to be kept, the current status needs to be fully recorded with photos, minutes or relevant technical documents.

Enterprises should also quickly notify the supplier in writing, clearly describing the abnormal content, the initial technical bases and requesting coordination in handling. Timely notification not only shows goodwill but also helps strengthen the legal position of the business if a dispute arises later.

For cases of high value or involving complex technical factors, the use of an independent inspection organization is often a necessary option. The results of an independent assessment have a much higher evidentiary value than internal assessments and often play a decisive role in the dispute resolution process.

More importantly, businesses need to avoid the psychology of using the right to suspend payment as a tool to exert commercial pressure. Article 51 of the 2005 Commercial Law is designed to protect the buyer against actual violations by the seller, not to create a negotiating advantage in unfounded disputes.

Conclusion

The right to suspend payment is an important legal mechanism to help buyers protect their rights when fraudulent acts are detected, when goods are subject to disputes or when goods delivered are not in accordance with the contract. However, this is also a conditional right. Enterprises should only apply this right when there is objective and authentic evidence of the seller's violation. If used arbitrarily or unfoundedly, businesses may face the obligation to compensate for damages and corresponding commercial sanctions.

In the context of increasingly complex supply chains and increasingly stringent technical standards, properly understanding and applying Article 51 of the Commercial Law 2005 not only helps businesses reduce the risk of disputes but also contributes to building a transparent business environment.  more equitable and sustainable.

Lawyer Nguyen Van Phuc

HM&P Law Firm