DATA

Date: 05-04-1996

Country: Vietnam

Number: 74/VPPT

Court: People's Supreme Court, Appeal Division in Ho Chi Minh City

Parties: Cong ty Ng Nam Bee v. Cong ty Thuong mai Tay Ninh

KEYWORDS
MERGER CLAUSE - USE OF EXTRINSIC EVIDENCE PRECLUDED - LETTER OF
CREDIT - AMOUNTS TO EXTRINSIC EVIDENCE

AVOIDANCE OF THE CONTRACT - BUYER'S FAILURE TO TAKE DELIVERY -

ABSTRACT

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

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 para. 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 made available by Dr. Le Net, Lecturer, National University of Ho Chi