- People's Supreme Court, Appeal Division in Ho Chi Minh City
- Cong ty Ng Nam Bee v. Cong ty Thuong mai Tay Ninh
MERGER CLAUSE - USE OF EXTRINSIC EVIDENCE PRECLUDED - LETTER OF CREDIT - AMOUNTS TO EXTRINSIC EVIDENCE
AVOIDANCE OF THE CONTRACT - BUYER'S FAILURE TO TAKE DELIVERY - SELLER'S RIGHT (ART.64(1) CISG)
Due to a quota restriction, a SOE company had agreed with another company to export a certain quantity of monosodium glutamate f.o.b. Quy Nhon (Vietnam) to a Singapore partner of the latter.). This contract contained a merger clause precluding the use of extrinsic evidence. Before delivery the Singapore buyer, in compliance with the sales contract, issued a letter of credit and paid a 50% down-payment. The buyer, however, on the last day contractually agreed for the delivery, prolonged the validity of the letter of credit and, in the same letter of credit, postponed the date of delivery of the goods. The seller declared the contract avoided for breach of the buyer's obligation to take delivery. Some days later the vessel provided for by the buyer to take delivery of the goods arrived at Quy Nhon but the goods were not delivered. The buyer commenced a legal action against the seller claiming damages and alleging that the first letter of credit contained a binding provision according to which the buyer had the right to change the date of shipment.
The Court rejected the buyer's claim by applying Arts. 29, 53, 61(3) and 64(1) CISG and found that the buyer had breached its obligation to take delivery according to the contract terms.
The Court stated that the merger clause contained in the sales contract prevented the buyer from using extrinsic evidence such as the letter of credit, which is an instrument of payment that must be consistent with the contract terms and cannot prevail over them.
The clause contained in the letter of credit entitling the buyer to change the date of shipment was to be considered an offer to modify the contract which was rejected by the seller and therefore was not binding.
The Court held that the seller was entitled to declare the contract avoided for breach of the buyer's obligation to take delivery (Art.64(1) CISG) and that it had acted reasonably since monosodium glutamate is a very delicate substance that could have deteriorated in the case of prolonged storage.
EXCERPT OF JUDGMENT - TRANSLATION
Ng Nam Bee (Singapore) Pte Ltd. v. Tay Ninh Trade (SOE) Co (No. 28/ KTPT): due to quota's restriction. Tan Loc Pte Corp. signed a 'uy-thac contract' with Tay Ninh Trade Co (SOE, abbreviated as Tanico) to export 300 tons of monosodium glutamate, value of $ 312,000 f.o.b. Quy Nhon (Vietnam) to a Singapore partner, Ng Nam Bee Pte. Ltd. On 2nd Jan. 1995 Tanico signed a sale contract with Ng Nam Bee, according to which payment shall be made by a irrevocable letter of credits (L/C) red clause (i.e. 50% downpayment before the presentation of document available). Time of delivery is any time up to 28th Feb. 1995. The contract also included a 'four-corner clause'.
On 5th Jan. 1995, Ng Nam Bee issued an irrevocable L/C, red clause, valid until 15th March. On 21st Jan. 1995 the red clause was realized (i.e. $ 156,000).
- On 28th Feb., the last day of contract performance, Ng Nam Bee sent an amendment of L/C No. 2, prolonged the validity of L/C until 4th April 1995. In the L/C, Ng Nam Bee also postponed the date of delivery until 20 March. The corresponding bank received the amendment on 1st March and sent it to Tanico, which received it on 2nd of March. It again on 8 March sent the amendment to Tan Loc. On the other hand, Tan Loc after waiting until 4 March, considered the contract rescinded and sent back the downpayment to Tanico in order to give it back to Ng Nam Bee. On 9 March upon receive the amendment, Tan Loc terminated the contract, declared Ng Nam Bee was in breach as if the contract failed to take the delivery.
- On 10 March Ng Nam Bee sent 2 facsimiles, confirmed that M/V Hei Hu Quan would arrive at Quy Nhon evening 11 March. The vessel arrived at Quy Nhon on 13th March in vain. Ng Nam Bee sued for damages. Ng Nam Bee alleged that in the first L/C, it imposed a clause, stated that the issuer reserved the right to change the shipment time. The question to the case is whether the clause could be construed as binding between the parties.
Held, for the defendant. The Court rejected the argument of the plaintiff The 'four-corner' clause in the main contract reflected intention of the parties to preclude the use of extrinsic evidence. The letter of credit by its nature is an instrument of payment, a type of extrinsic evidence and cannot prevail over contract terms. The content of L/C must be also be consistent with the contract. The alleged clause in this case is construed as an offer, waiting for acceptance from the beneficiary. However, it has been rejected clearly by Tanico, so it has no binding force. Moreover, the conduct of the seller is reasonable, since monosodium glutamate is a delicate good, its quality and quantity could easily be destroyed due to a prolonged time storage. Trade usage also requires shipment on time, avoid damages to the parties.
The buyer was in breach Art. 7 of the contract, Art. 16, 21, 26 of the O. E. C., rules 9 par. D and I of the UCP letter of credits, articles 29, 53, 61 (3) and 64 (1) al. a CISG. According to Art 64 CISG, in case of the breach of the buyer, the seller has the right to rescind the contract.
Translation from Vietnamese by Dr. Le Net, Lecturer, National University of Ho Chi Minh City, Vietnam.}}
- Dr. Le Net, Lecturer, Law College, National University of Ho Chi Minh City, Vietnam
Original in Vietnamese: