Delay in Payment

From Max-EuP 2012

by Florian Faust

1. Subject matter and purpose

Delay in payment may give rise to various remedies, in particular to a claim for interest but also to a claim for damages and a right to terminate the contract (termination of a contract). A further possible consequence of delay—an increased liability for the object of performance (eg § 287 Bürgerliches Gesetzbuch (BGB))—is of no practical importance with regard to delay in payment and will accordingly not be addressed here.

A delay in payment occurs where the debtor is under an obligation to pay, and fails to do so when payment is due. In order to decide whether or not a payment was made on time, it is necessary to define when a payment is ‘made’. In this respect, it is possible to refer either to the time when the debtor performs the act he has to perform in order to pay or to the time when the creditor receives the money. In the first case the creditor bears the risk of a delay between the debtor’s act and the creditor’s receiving the payment; in the second case this risk is borne by the debtor. It is preferable to tie both the beginning and the end of a delay in payment to the debtor’s act. For the question arises only if the act the debtor has to perform is completed before the creditor receives the payment, eg because the debtor only has to arrange a bank transfer and does not have to ensure that the money is actually credited to the creditor’s account. In that case, the whole purpose of the distinction between the two events is to shift the risks which occur in the meantime to the creditor.

A mere delay in payment is not necessarily sufficient to trigger remedies. In addition, the missing of a deadline or a reminder by the creditor may be necessary. The remedies may also require fault or some other kind of responsibility of the debtor.

The aim of the interest on arrears may be seen either from the perspective of damages or from the perspective of unjustified enrichment. In the first case, the interest constitutes lump sum damages, which are intended to compensate the creditor for incurring interest on the loans he took out himself or for not being able to earn interest by investing the amount due. In the second case the interest is intended to absorb (in the form of a lump sum) the profits which the debtor derived from the use of the amount owed during the delay. The aim of the interest determines which interest rate is applicable if the interest rates at the creditor’s and at the debtor’s places of business are different, as is often the case in international transactions. From the point of view of unjustified enrichment, the interest rate at the debtor’s place of business should prevail, whereas from the point of view of damages the interest rate at the creditor’s place of business should be applied.

2. Tendencies in legal development

Most legal systems do not have a special term for a delay that satisfies all requirements for giving rise to remedies. While in German law such a delay is called Verzug, most legal systems—and in particular the sets of rules of uniform law and the international model laws—simply spell out the remedies’ requirements. Thus, whereas the German title of Dir 2000/35 speaks of Zahlungsverzug, the English title simply refers to ‘late payment’ and the French title to retard de paiement. Although the term used is defined in Art 2(2) Late Payment Directive, this definition is of little importance within the Directive as the requirements for the remedies in case of a delay in payment are mostly spelled out without the term playing a significant part.

3. Historical development and national laws

In Roman law, an increased liability for the object of performance was considered the most important consequence of a delay in performance. But—with the initial exception of actiones stricti iuris for a certum—mora debitoris also gave rise to an obligation to surrender the fruits that the object of performance had yielded during the delay and—in case of money debts—to pay lump sum interest and possibly compensate a further loss of the creditor as well. Whether or not mora debitoris required a reminder by the creditor and fault in addition to a debt that was actionable and due is doubtful. The Roman jurists probably balanced all the relevant circumstances of the individual case; a reminder made the debtor aware of his obligation and thus normally established fault.

In the ius commune, the importance of fault increased, though it seems that fault was presumed: mora debitoris did not require a (positive) establishment of fault, but if the absence of fault was established, there was no mora. An event that made the performance more difficult could exclude fault if the debtor was not responsible for it, even if it did not release the debtor from his obligation. Even lack of money excluded mora if it was not attributable to the debtor’s fault. The requirements of fault and of a reminder were clearly distinguished; a reminder was not required if a due date was fixed by agreement or by law (dies interpellat pro homine). The creditor could claim compensation for the loss he suffered because of the delay. Interest on account of mora was considered as lump sum damages and therefore did not violate the canonical usura prohibition (canon law).

The German Bürgerliches Gesetzbuch (BGB) of 1900 followed these basic principles, which were also adhered to in the course of the reform of the law of obligations in 2002 (§§ 284 ff in the original version of the BGB, §§ 280(1) and (2), 286 ff BGB today). Verzug requires both fault, which is presumed, and a reminder, which in certain cases is unnecessary, in particular if the debtor seriously and definitively refuses performance or if a due date is fixed. According to § 286(3) BGB, Verzug also begins 30 days after the obligation is due and the debtor received an invoice. This provision, promulgated in 2000 as § 284(3) and revised in 2002, is intended to implement the Late Payment Directive. Verzug results in an increased liability for the object of performance, a right to claim compensation for the loss suffered by the creditor because of the delay, and—in case of money debts—a duty to pay interest. At first, the interest rate was fixed at 4 per cent per year and—if both parties were merchants—at 5 per cent per year. This was criticized as being considerably too low. Therefore, in 2000 the interest rate was raised and rendered floating. Today it amounts to 5 percentage points above the basic rate of interest (§ 247 BGB) or—if none of the parties is a consumer and the obligation is to pay a contract price—8 percentage points above the basic rate of interest. The reform of the law of obligations diminished the importance of Verzug insofar as today neither the right to terminate the contract nor the claim for damages in lieu of performance require Verzug. Rather, it is sufficient that the debtor did not perform within an additional period of time of reasonable length fixed by the creditor (§§ 281, 323 BGB). In particular, this is relevant with regard to the termination of the contract, which does not require fault under the revised law.

In Swiss law, too, the term Verzug still serves an important purpose. In contrast to German law, Verzug does not require fault, but—unless a due date is fixed—it does require a reminder by the creditor (Art 102 Swiss Code of Obligations (OR)). The debtor has to pay interest at a rate of usually 5 per cent per year (Art 104 OR) and—if he does not prove that he is free from fault—compensate any further loss suffered by the creditor (Art 106 OR). The Swiss Verzug is also a requirement for a claim for damages in lieu of performance and for the termination of the contract, both of which normally further require the expiration of an additional period of time of reasonable length fixed by the creditor (Arts 107, 108 OR).

In the legal systems that do not have a special term such as Verzug, the consequences of late payment are very similar. In most European countries, interest is to be paid, partly at a fixed rate (eg Arts 1224(1), 1284(1) Codice civile), but increasingly at a floating rate (eg Art L313-2 French Code monétaire et financier). Compensation of a further loss normally may be claimed by means of damages, but there are exceptions (eg Art 1153 French Code civil).

Claims for damages in lieu of performance and the termination of the contract normally require a breach (of some significance) or the expiration of an additional period of time (eg §§ 918(1), 919 ABGB, Art 1454 Codice civile). In English law, for example, if punctual performance of an obligation is not already ‘of the essence of the contract’, by fixing an additional period of time of reasonable length, the creditor can ‘make time of the essence’.

4. International uniform law and international model laws

a) Late Payment Directive

The Late Payment Directive is the most important international set of rules on late payment. It (only) applies to payments made as remuneration for commercial transactions, and not, for example, to the payment of damages and to transactions with consumers. It fixes a minimum standard in favour of the creditor and only governs claims for interest and claims for compensation for recovery costs, but not claims for damages. These claims require a late payment, ie the exceeding of the contractual or statutory period of payment (Art 2(2) Late Payment Directive). No reminder by the creditor is required, but both claims are excluded if the debtor is not responsible for the delay. Interest is payable from the day following the date or the end of the period for payment fixed in the contract. If no such date or period is fixed, interest becomes payable 30 days after the debtor has received both an invoice and the goods or services. If a procedure of acceptance or verification is provided for by statute or in the contract, interest does not become payable before this procedure has taken place (Art 3(1)(a) and (b) Late Payment Directive). The claim for interest depends on when the creditor receives the amount due. The European Court of Justice (ECJ) has held that, in case of payment by bank transfer, the sum due has to be credited to the creditor’s account in order to avoid, or put an end to, the application of interest. However, the debtor’s liability is excluded if the late payment is not the result of his conduct, as he has diligently taken into account the periods normally necessary for execution of a bank transfer (ECJ Case C-306/06 – 01051 Telecom GmbH v Deutsche Telekom AG [2008] ECR I-1923). Thus, the ECJ apparently does not hold the debtor liable for mistakes by the banks involved. The interest rate floats according to a reference rate fixed by the European Central Bank (Art 3(1)(d) Late Payment Directive).

b) International model laws

The rules on late payment in the Principles of European Contract Law (PECL), in the UNIDROIT Principles of International Commercial Contracts (PICC) 2010 and in the Draft Common Frame of Reference (DCFR) are very similar. None of these sets of rules uses a term such as Verzug; rather, they regulate the consequences of a delay in performance without reference to such a doctrinal category. The creditor of a money debt is entitled to interest from the time when payment is due at the average commercial bank short-term lending rate for prime borrowers that prevails for the currency of payment at the place where payment is due (Art 9:508 PECL; Art 7.4.9 UNIDROIT PICC 2010; Art III.-3:708 DCFR). The claim for interest is independent of whether the non-payment is excused under Art 8:108 PECL, Art 7.1.7 UNIDROIT PICC 2010, Art III.-3:104 DCFR; this is an important difference to the Late Payment Directive. According to the Comments to the PECL, the claim is designed to compensate the creditor’s loss; the interest rate chosen was considered to be the best yardstick for assessing this loss. According to Comment B to Art 9:508 PECL, the provision applies only to primary contractual obligations to pay and does not cover secondary monetary obligations, such as claims for damages. Compensation for any further loss may be claimed under the general rules on damages (Art 9:501 PECL; Art 7.4.1 UNIDROIT PICC 2010; Art III.-3:701 DCFR); there are no special requirements such as a reminder. Termination of the contract does not require some kind of Verzug either (see Comment A to Art 8:106 PECL). Rather, the creditor may terminate the contract (Art 9:301 PECL; Art 7.3.1 UNIDROIT PICC 2010; Art III.-3:502 f DCFR) if the non-performance is fundamental (Art 8:103 PECL; Art 7.3.1(2) UNIDROIT PICC 2010; Art III.-3:502(2) DCFR) or if an additional period of time of reasonable length, fixed by the creditor, has expired (Art 8:106(3) PECL; Art 7.1.5(3) and (4) UNIDROIT PICC 2010 with an exception if the obligation that has not been performed forms only a minor part of the debtor’s contractual obligation; Art III.-3:503 DCFR). Article III.-3:710 DCFR contains special rules, derived from the Late Payment Directive, on the obligation of a business to pay a price due under a contract for the supply of goods, other assets or services.


The CISG (sale of goods, international (uniform law)) does not use the concept of Verzug either. Neither the seller’s claim for damages because of the buyer’s failure to pay (Art 61(1)(b) CISG) nor the claim for interest (Art 78 CISG) require fault or a reminder; both claims only require that payment has not been made when it was due. Interest may be claimed even if a claim for damages is excluded under Art 79 CISG (Art 79(5) CISG). It is disputed whether Art 78 CISG also applies to claims for payment which are not yet liquidated.

The CISG does not fix an interest rate as no agreement could be reached in this respect by the contracting states. If the parties—as is typical—did not fix a rate by agreement, under Art 9 CISG regard is to be had to the usage in international trade. If no such usage can be ascertained, Art 7(2) CISG refers to the general principles on which the CISG is based or, in the absence of such principles, to the law applicable by virtue of the rules of private international law. It is highly controversial how the interest rate is to be fixed. An interesting proposal suggests to regard as ‘general principles’ within the meaning of Art 7(2) CISG the rules in other international sets of rules, ie the rules laid down in the Late Payment Directive, in the UNIDROIT PICC 2010, or in the PECL. However, these can hardly be considered principles upon which the CISG is based, in particular because they are more recent than the CISG.

According to Art 64(1) CISG, the seller may declare the contract avoided if the buyer’s failure to pay amounts to a fundamental breach of contract (Art 25 CISG), or if the buyer still fails to pay within an additional period of time fixed by the seller in accordance with Art 63(1) CISG.


Reinhard Zimmermann, The Law of Obligations (1996) 790 ff; Martin Schmidt-Kessel, ‘Zahlungsverzug im Handelsverkehr—ein neuer Richtlinienentwurf’ (1998) JZ 1135; Franco Ferrari, ‘Verzugszinsen nach Art 78 UN-Kaufrecht’ [2003] Internationales Handelsrecht 153; Steven Ongena and Reinhard Schulte-Braucks, ‘The Late Payment Directive—A Step towards an Emerging European Private Law?’ (2003) 11 ERPL 519; Florian Faust, ‘Zinsen bei Zahlungsverzug [im UN-Kaufrecht]’ (2004) 68 RabelsZ 511; Justus Meyer, ‘Zahlungsverzug im UN-Kaufrecht und EU-Vertragsrecht’ in Festschrift Gerhard Otte (2005) 241; Sebastian Lohsse, ‘§§ 286–292. Verzug des Schuldners’ in Mathias Schmoeckel, Joachim Rückert and Reinhard Zimmermann (eds), Historisch-kritischer Kommentar zum BGB, vol II/1 (2007); Pilar Perales Viscasillas, ‘Late Payment Directive 2000/35 and the CISG’ (2007) 19 Pace International Law Review 125; Peter Huber and Alastair Mullis, The CISG. A New Textbook for Students and Practitioners (2007) 356 ff; Klaus Bacher, Art 78 in Peter Schlechtriem and Ingeborg Schwenzer (eds), Commentary on the UN Convention on the International Sale of Goods (3rd edn, 2010).

Retrieved from Delay in Payment – Max-EuP 2012 on 21 May 2024.

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