CONTRACTUAL DISPUTES – THE MEANING OF MERGER CLAUSE IN THE CONTRACT

2:40 am | |

In contractual disputes, there is a possibility that the involving parties have different agreements on an issue at different moments. For example, in the case No. 09/2016 / KDTM-GĐT on May 20, 2016, a dispute between company’s members, Mr. Lin Chung N and Mr. Bui Chi H who have signed three agreements at three different times on the same issue which was the establishment of an Investment Company Limited H [Company]. Specifically, on January 14, 2010, they signed a Memorandum of Cooperation. On February 2, 2010, after the establishment of the company , they signed the second Investment Agreement [The 2010 Agreement]. On September 19, 2011, after a dispute in trial court, Mr. H submitted another Joint Venture Agreement [The 2011 Agreement]. This raised a question of which agreement was legally enforceable. Which agreement prevails according to Vietnamese laws and legal practices.

Let us consider two cases concerning he 2011’s Agreement (the latest agreement) (1) The Agreement involved a merger clause, and (2) , the Agreement did not involved a merger clause. The merger clause is a clause in the contract that read “This agreement are reached by the involving parties and supersedes prior agreements.”

In the first case (1), the 2011 Agreement contains a merger clause. It is obvious that the 2011 Agreement will be legally binding and replace the previous agreements based on the will of the involving parties. This inference is also consistent with the principle of International Commercial Contract – Article 2.17 “If a written contract contains a provision that the document is all agreements of the parties, it can not be challenged or supplemented by evidence other than the contract, including text writings before the contract is entered into. However, such evidence may be used for explaining the content of the contract “.

In the second case, the 2011 Agreement does not contains a merger clause. How will the legal question set out above be answered?

  • Legislation. Vietnamese legislation do not directly answer the above questions. However, it may be indirectly deduced that the 2011 Agreement is a revision of the previous agreement. This inference is based on the provisions of Article 421 of the Civil Code “the parties may agree to amend the contract” and Article 3 of the Civil Code. “All commitments and agreements that do not violate the provisions of the law, social morality are enforceable on the parties and must be respected by the other.

For example, if the 2010 Agreement contained clause which mentioned that “after 15 days since the new company was established, Party B must complete the procedure for changing the name of the land into the assets of the new company. In expiry, if Party B violates the contract, Party A does not continue to invest. Party B must refund for all the proceeds of the first stage and compensate a corresponding amount as the first phase. Simultaneously, the two parties liquidate the signed joint venture agreement. ” Due to no merger clause in the 2011 Agreement, the content of the new contract and the content of the old contract could be considered to complement one another and form the entire agreement of the involving parties.

  • Legal practice. During the dispute settlement process, the court considered the 2011 Agreement to be a substitute for the 2010 Agreement . Specifically, the court stated as follows: “Attached to the application , Mr. Hieu submitted the joint venture contract No. 01/09 / HDLTT-HM dated 19/9/2011 and its Appendix 1 between Mr. Lin Chung N and Mr. Bui Chi H … If there is the contract and annex, the agreement mentioned in Article 11 of the 2010 Agreement no longer meaningful. When resolving this case, the Court of First Instance should gather evidence to clarify the legal validity of these documents, ensuring that the case is resolved in accordance with the law.

Therefore, in order to avoid disputes occurred in performance of the contract, once the agreement has been thoroughly discussed, the involving parties may jointly put pen the final draft. This can be done by “merger” or “merger” terms (for example, “this agreement includes all agreements entered into by the parties“).

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