INITIATING A LAWSUIT TO COLLECT BUILDING MATERIAL DEBTS
During business operations, enterprises often face their partners’ violations of payment obligations, especially in the context that the economy has been heavily affected by the current Covid-19 epidemic. In which, violations of payment obligations in the construction field in general and such violations for building material debts, in particular, have become increasingly common. Therefore, clearly understanding the building material debt and the solution to initiate a lawsuit to collect this debt plays an important role for enterprises operating in the construction field. In this article, TNTP will share legal experiences on the above issues related to building material debt.
1. The building material debt
1.1 Definition of the building material debt
During the implementation of construction projects and work, the enterprise and its partner will sign a building material purchase and sale contract. The Purchaser is usually the investor or the main contractor and the Seller is the supplier of building materials.
Accordingly, the building material debt is an amount that the Purchaser is obliged to pay to the Seller under the building material purchase and sale contract but the payment term expires and the Purchaser fails to perform such payment obligation. Besides, since projects or work in the construction field are regularly invested on a large scale, building material debts are also of great value.
1.2 Causes of the building material debt
There are many causes affecting the Purchaser’s payment ability, leading to building material debts such as delays on construction schedule of the projects or work; the investor’s limited capital and financial capacity; disputes between parties involved in projects or work; or the Purchaser’s cooperative attitude in the performance of the building material purchase and sale contract…
For example, in case the Purchaser purchases building materials from an enterprise that is the main contractor of the project, the parties agree that the payment of the value of building materials will be made under the project’s stages of workload acceptance. Thus, if the construction schedule of the project is prolonged, the acceptance will be delayed, at that time, the payment of building materials to the Seller will also be prolonged.
1.3 Difficulties in collecting the building material debt
As the above analyzed in Item 1.1 and Item 1.2, the payment of building material debts can be directly made by the investor (if the investor is the Purchaser) or by the main contractor (if the main contractor is the Purchaser). In case the main contractor is the Purchaser, the building material debt will be paid by the main contractor after the main contractor is paid the value of the acceptance workload by the investor. Thus, in both cases, the investor’s capital and financial capacity directly affect the payment of building material debts. If the investor does not ensure his/her capital and financial capacity during the implementation of construction projects and work, the collection of the building material debt is extremely difficult.
Besides, in practice, the construction schedule of the projects and work regularly lasts from 06 months to many years depending on the level and the scale of the projects and work. At that time, the late time on the Purchaser’s payment of building materials will also be prolonged, leading to the collection of the building material debt becoming more difficult.
2. Initiating a lawsuit to collect the building material debt
2.1 Initiating a lawsuit to request the return of building materials
When the debt of building materials arises, if the Seller evaluates that the Purchaser is unwilling or unable to pay this debt, the Seller may initiate a lawsuit in the competent Court or Arbitration Center to request the return of the building materials.
This solution is suitable for bad building material debts when the Purchaser is unwilling or unable to pay this debt. It helps the Seller avoid the risk of not being able to collect any building material debt from the Purchaser.
Normally, when initiating a lawsuit to request the return of building materials, such materials have been used in whole or in part for the construction projects and work. At that time, requesting the Purchaser return the entire and intact building materials is not a viable solution. In this case, although the Seller initiates a lawsuit and such request is accepted by the Court, the enforcement of the Judgment and the collection of building materials are also difficult in practice.
If the building materials have not been used in whole or in part, the Seller may choose to liquidate or sell to investors or contractors of other projects and work to recover capital. However, building materials may not remain the original quality and value. Therefore, the Seller should carefully consider initiating a lawsuit to request the return of building materials to reduce the damage caused by Purchaser.
2.2 Initiating a lawsuit to request the payment of the building material debt
In case the Seller evaluates that the Purchaser is still able to pay the building material debt but is unwilling to settle it, the Seller may initiate a lawsuit in the competent Court or Arbitration Center to force the Purchaser to pay the building material debt.
The Seller may collect the entire value of original building materials provided to the Purchaser without liquidating or continuing to sell such materials to a third party as the above solution that requests the Purchaser’s return of building materials. In addition, the Seller may also request the Purchaser to pay the interest on the late payment amount corresponding to the late payment period.
With this solution, the Seller needs to evaluate the Purchaser’s ability to pay the building material debts. In case the Seller initiates a lawsuit and such request is accepted by the Court or Arbitration Center, the collection of the building material debts also depends on factors of judgment enforcement such as conditions of the Purchaser’s judgment enforcement, the progress of judgment enforcement by competent Judgment Enforcement Agencies. Therefore, the time in requesting the Purchaser to pay the building material debt may be longer than in requesting the Purchaser to return the building materials.
In the light of the above, enterprises should consider choosing suitable solutions to collect building material debts in practice. Depending on the characteristics of the building material debts and the payment ability of the Purchaser, these solutions will bring different advantages to ensure enterprises’ interests.
The above is our legal sharing of the building material debt. We hope this article can help readers clearly understand the building material debts, the solutions to initiate a lawsuit to collect the building material debts, and the advantages and disadvantages of these solutions to make the right choice in the settlement and handling process of the building material debts.
TNTP & Associates International Law Firm