Sales contracts are among the most common agreements in commerce, yet disputes frequently arise regarding the fulfillment of delivery obligations. Under Vietnamese law, the aggrieved party is entitled to terminate or suspend the contract if the other party fundamentally breaches its contractual obligations (Article 312 of the Commercial Law 2005). A “fundamental breach” is defined as a violation causing substantial damage to the extent that the aggrieved party cannot achieve the purpose of the contract. However, the application of this principle remains contentious due to the lack of clear guidelines or definitions for “damage to the extent that the purpose of the contract cannot be achieved.”
Moreover, the decision to terminate or suspend a contract due to a fundamental breach is unilateral and subject to judicial review by courts or competent dispute resolution bodies. This article examines various judicial perspectives on breaches of delivery obligations in sales contracts that may constitute fundamental breaches under commercial law.
First, the seller failed to deliver the goods on time.
Appellate Judgment No. 427/2022/KDTM-PT dated July 27, 2022, regarding a sales contract dispute heard by the Ho Chi Minh City People’s Court of Appeal: The appellate court determined that Company U’s failure to fulfill its contractual obligation to deliver goods on time constituted a fundamental breach of contract. This failure prevented the plaintiff from achieving the purpose of the contract. Based on Clause 13, Article 3 of the Commercial Law and Point b, Clause 4, Article 312 of the Commercial Law, the lower court’s decision to accept the plaintiff’s claim to terminate the contract and compel Company U to return the advance payment was deemed well-founded.
Second, the buyer failed to receive goods in a timely manner.
Judgment No. 01/2022/KDTM-PT dated March 30, 2022, regarding a sales contract dispute heard by the Hung Yen Provincial People’s Court of Appeal: The appellate court found that, under the sales contract, Party B (the buyer) breached the agreement by failing to receive the goods as per the agreed timeline and schedule. The contract constituted a sales agreement, and Party B’s failure to receive the goods amounted to a fundamental breach of contract, which entitled Party A (the seller) to terminate the contract. Due to Party B’s breach, Party A sold the batch of 500,000 kg of South American corn to a third party to mitigate damages, a measure consistent with Article 305 of the Commercial Law.
Third, the seller delivered non-conforming goods of substandard quality, failing to meet the agreed specifications, rendering the goods unusable for their intended purpose.
Judgment No. 31/2018/KDTM-PT dated October 30, 2018, regarding a dispute over a sales contract by the Binh Duong Provincial People’s Court:
- Regarding the delivery timeline: The Court observed that the subject matter of the three contracts included an automatic block brick production line, six sets of automatic sand hopper systems, conveyors, electrical cabinets, and one lightweight concrete production line, which were intended to be integrated systems. Article 4 of all three contracts stipulated that the seller was responsible for fully installing the machinery, conducting trial operations, and ensuring that each system produced standard-compliant products at the buyer’s facility. The defendant admitted that the machinery systems were not fully installed, leaving the equipment non-operational, and no system was capable of producing any products. Consequently, it was determined that the goods specified in the three contracts had not been delivered in accordance with the agreed timelines.
- Regarding the quality of goods: The contracts stipulated that the goods would be new, except for the motors, which were specified to be 80% used. However, according to an inspection certificate issued by Vina Control Co., Ltd., Ho Chi Minh City, the goods under the three contracts were identified as used items (including a hydraulic system showing signs of wear and scratched pistons), non-conforming equipment incompatible for system operation, and lacking verifiable origin.
The seller fundamentally breached the contractual obligations by failing to deliver the goods on time, providing non-conforming and substandard goods, and delivering non-integrated systems, significantly impairing the buyer’s rights.
See more:
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2/ Some issues to note about contracts for residential house lease
3/ Some legal issues pertaining to entering digital contracts
Disclaimers:
This article is for general information purposes only and is not intended to provide any legal advice for any particular case. The legal provisions referenced in the content are in effect at the time of publication but may have expired at the time you read the content. We therefore advise that you always consult a professional consultant before applying any content.
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