Justice and Legal System - Law - Notes, Study notes of Law

Download Justice and Legal System - Law - Notes and more Study notes Law in PDF only on Docsity! LAW OF CONTRACT – II Teaching Material Developed By: 1.) Balew Mersha 2.) Kahsay Debesu Sponsored by the Justice and Legal System Research Institute 2009 iii 3. Plurality of Simple and/or Joint Guarantors--------------------------------- 126 4.5 Relationship between/among Co-sureties------------------------------------------ 131 4.6 Extinction of Surety ship------------------------------------------------------------ 136 Review questions--------------------------------------------------------------------------- 139 Chapter Five: Third Parties in Relation to Contracts----------------------------- 142 5.1. Promises and stipulations concerning third parties-------------------------------- 143 5.1.1. The option to substitute a third party----------------------------------------- 144 5.1.2. The promise for third party ---------------------------------------------------- 147 5.1.3. Stipulation for the benefit of a third party ----------------------------------- 149 5.2. Assignment of rights and subrogation--------------------------------------------- 156 5.2.1. Assignment of Rights---------------------------------------------------------- 157 5.2.2 Subrogation----------------------------------------------------------------------- 163 5.2.3. Effect of subrogation or assignments----------------------------------------- 170 5.3. Delegation and Assignment of Obligations--------------------------------------- 171 5.3.1. Delegation of Obligations------------------------------------------------------ 172 5.3.2. Assignment of Obligations----------------------------------------------------- 176 5.4. Heirs and Creditors of the Parties -------------------------------------------------- 177 5.4.1. Heirs of the Parties-------------------------------------------------------------- 178 5.4.2. Creditors of the Parties---------------------------------------------------------- 179 Review questions--------------------------------------------------------------------------- 190 Chapter Six: Proof of Contracts------------------------------------------------------- 192 6.1. Burden of proof and admissibility of evidence------------------------------------ 193 6.2. Written evidence and its probative value------------------------------------------- 197 6.2.1. Authentication of Documentary Evidence------------------------------------ 197 6.2.2. Best evidence rule---------------------------------------------------------------- 200 6.3. Presumption of payment ------------------------------------------------------------- 204 6.3.1 Contrary proof ------------------------------------------------------------------- 206 Bibliography ------------------------------------------------------------------------------- 208 Page | 1 Introduction As it might be speculated, this material is the continuation of contract I. In Contract I material you have read about formation of contract, along with the elements for its formation, the effect of an already formed contract and other important points. In this material, you will find the methods and mechanism of protecting your right if the contract suffers from defects in consent as it is enunciated in the Contract Law I material or if you need to cancel the contract for different reasons. The consequences of cancellation and invalidation of contracts with other means of extinction of contract are dealt within Chapter One of this material. Again, it is to be recalled from contract one reading material that the autonomy of the parties to make their own contract is one of the corner stones on which the law of contract seeded. Chapter Two of this material will take you further and strengthen your understanding of the issue by discussing some very common terms of contract, their implication and the position of the law in their interpretation when the parties fail to regulate it in their contract. In contract I, it is provided that at least two parties are needed for the formation of a contract. In light of this, it is not uncommon to find more than two parties involved in one contract. In Chapter Three of this material, therefore, you will find some principles and rules dealing with the plurality of parties shaped in a way to give you precise but adequate notes. In Chapter Four of this material, surety ship will be discussed. In reading this chapter, you have to relate the notes with your daily activities and to visualize some cases in order to have a clear understanding of the issues raised thereto. In Chapter Five of this material, the effect of contract on third parties is discussed. The doctrine of privity of contract with its many exceptions is dealt with some degree of complexity but interestingly. In Chapter Six you will be introduced to law of evidence. Having in mind that you will take the course „Law of Evidence‟ in the coming semesters, the notes are not detail enough. The discussion will be limited to how a contract is proved. In general, to achieve the objectives of this material in the required efficiency, reading each chapter and title of the material in relation to the lessons of contract one is important. Page | 2 Chapter One Extinction of Obligations Introduction An already formed contract creates obligation of proprietary nature among the contracting parties. These obligations rarely exist forever without being extinguished. Sometimes after the formation of the contract, the contractually created obligations extinguish because of different reasons. Having appreciated the formation and effect of contract, it is worth discussing extinction of obligation. Extinction of obligation connotes the stoppage of already existing obligation. In light of this, this chapter deals with the grounds on which on already created obligation is extinguished. In so doing, the ways by which obligation extinguishes will be discussed in a detailed manner. According to Article 1806 of the civil code(C.C), there are different grounds which cause extinction of obligation. Cumulative reading of Articles 1806 and 1807 of the C.C takes performance, invalidation, cancellation, termination, novation, set off, period of limitation of a contract, and merger as grounds of extinction of obligation. Each way of extinction of obligation has been, accordingly, discussed in different sections. While discussing the grounds of extinction, their meaning, the difference among them and with other ambiguous terms, effect on the contractants and third parties, effect on the main obligation and on the collateral obligation will be discussed. 1.1. Performance of contract One of the ways by which contractual obligation extinguishes is through performance of contract. Even though performance of contract is one way of extinction of obligation, it has Page | 5 Sometimes compensation might be ordered when a contract is invalidated. This might lead us to the conclusion that the effect of invalidation and cancellation is the same in compensation. However, the damage following from an invalidation of a contract shall aim at putting the contracting parties in a place they would have been had the contract not been formed. Cancellation on the other hand is making a contract ineffective when there is non- performance. Cancellation of a contract is one effect of contract in that the contract is formed within the legally provided requirements. When one of the contracting parties fails to perform a contract the other party might cancel the contract as one remedy of non-performance of the contract. There might be again other grounds of cancellation like the condition which results in cancellation. The other basic difference between invalidation and cancellation is their ground. The ground for invalidation is defect in its formation while the ground for cancellation is non- performance. This does not, however, mean that the only difference is in their ground. They are also different in their effect. Eventhough the effect of both invalidation and cancellation is restitution, cancellation additionally entitles the party a compensation that rewards the benefit of contract. Unless the invalid contract is invalidated, the contract is upheld and becomes effective. Eventhough the contract might not be performed, the remedies of non-performance will be due. Under Ethiopian law of contract anybody that wants it to be invalidated cannot invalidate a defective contract. It shall be the party who is affected by the invalid contract that can invalidate the contract. Article 1808 (1) of C.C is provided to this effect stating in its wording: “A contract which is affected by a defect in consent or by the incapacity of one party may only be invalidated at the request of that party” The basic reason to entitle the party that is affected by the invalid contract the power of invalidating the contract is to protect the interest of that party. The other party whose consent is not affected or who is not incapable is considered to have full information or rationality behavior. Unless he suffers from information asymmetry or was irrational at the time of the Page | 6 formation of the contract there is no reason to help him by empowering him to invalidate the contract. This does not, however, mean that no one other than the party who is affected by the contract can invalidate the contract. Representative of a party who gave his consent either by defect in consent or under incapacity can invalidate the contract. Representatives of the party, that is potential to be adversely affected by the invalid contract might be in a position of enforcing the rights of the party. If for example a minor enters into a contract, the minor may not necessarily invalidate the contract by himself. His tutor can invalidate it, as his tutor is his legal representative. In sub-Article two of this provision, however, any party is entitled to invalidate an invalid contract in the definition of this provision. Article 1808 sub Article (2) connotes that “A contract whose object is unlawful or immoral or a contract not made in the prescribed form may be invalidated at the request of any contracting party or interested third party”. This provision is not clear in its position as to a contract whose object is not sufficiently defined and whose object is impossible. Whether such contract is included under this provision is a gap to be filled by interpretation. When we generally observe the sprit of the provisions, contracts whose object is not sufficiently defined, impossible and which are not in a prescribed form seems to be incorporated by analogical interpretation. In spite of the fact that sub Article (1) of the provision does not include a contract which is defective owing to the aforementioned grounds, its exclusion does not mean that such contracts are valid. If such contracts are not valid the effect of a contract whose object is invalid or immoral is the same with the effect of contract whose object is not sufficiently defined, made in a prescribed form, and whose object is not possible. Articles 1714 (1), 1715(2), 1716(2) and 1720(1) clearly show that the above mentioned grounds shall render the contract ineffective. Capacity and consent do not, however, render a contract ineffective. These grounds rather entitle one of the parties the power either to invalidate the contract or give it effect. Therefore Page | 7 since the grounds provided underArticles 1714 (1), 1715(2), 1716(2) and 1720(1) are similar in rendering the contract defective, it is advisable that Art.1808 (2) shall include a contract whose object is not sufficiently defined, and not possible by analogical interpretation with all the criticisms. In addition to insufficient coverage, the provision seems to connote that void contracts are subjected to invalidation as the phrase “… may be invalidated at the request of any contracting or any interested party…” is put to that effect. Its being under the title of extinction of obligation, along with this provision also leads to the conclusion that unless void contract is invalidated, the obligation created is not extinguished. Eventhough this seems a logical conclusion which takes its premises from the title of Chapter 3 and Article 1808 (2), giving effect to an illegal or immoral contract is not only absurd but also in contrary with 1714 (1), 1715(2), 1716(2) and 1720(1) of the Civil code which shows that such contract shall be of no effect. However, the concept of invalidation depicts making a potentially effective contract ineffective. A contract, which is not invalidated, is required to have effect like any other contract. It is this effect of invalid contract that begs its invalidation to make it ineffective and correct the error it imposes on contractants. If the contract is void, however, it does not have legal effect from the very beginning. Provisions that cover the requirements whose absence renders a contract void vividly shows the ineffective nature of such a contract. Under Article 1714- it has been vividly stated that the contract shall be of no effect by law not by invalidation if “the obligation of the parties or one of them cannot be ascertained with sufficient precision.” Article 1715 again renders a contract, whose object is impossible absolutely and insuperably ineffective. Similar connotations have been incorporated in Articles 1716, 1717 and these provisions in effect show that the contract is no more effective. Noncompliance of formal requirements also renders a contract void or ineffective. We can infer this from Article 1720 in that a contract which is not made in the prescribed form is not a Page | 10 The presence of invalid contract does not necessarily mean that the contract will be invalidated and the obligation will be extinguished. There are circumstances where the contract is upheld. Confirmation by the injured party is one among the circumstances. Article 1811 indicates “the party whose consent was vitiated may waive his right to require invalidation where the cause which vitiated his consent disappeared.” The confirmation can set free the contract from invalidation if the confirmation was made after the cause which vitiated the consent disappeared. The 15 year old boy can confirm the contract and avoid invalidation after he attains 18 years old. If the invalid contract due to defect in consent was made in special form, confirmation shall also be in special form so that the confirmation is to be valid. A contract for the formation of which form is a mandatory requirement shall also be confirmed in the same form. Eventhough an invalid contract can be confirmed by the injured party, there are certain circumstances where the contracting party of the injured party may make the contract effective even against the will of the injured party. Where the invalidity is owing to unconscionable nature of the contract, the other party against whose will invalidation is required can put the action to an end by making good the injury pursuant to Article 1812. Art.1812. Putting an end to action. Where a party requires the invalidation of an unconscionable contract, the other party may put an end to the action by offering to make good the injury. The connotation enshrined here is that once the element of unconscionable nature of a contract that is unfair consideration is made good, the contract shall be effective. Amendment of a contract as effect of invalid contract is also connoted under this provision. The presence of grounds for invalidation does not necessarily imply complete invalidation of the contract. When only part of the contract is invalidated, only that part is invalidated provided that such invalidation does not affect the essence of the contract. Page | 11 The party who has the right to invalidation is imposed with certain obligation aimed at protecting certainty as to the fate of the contract. Article 1814 entitles a party whose contract can be invalidated to require if his contractant intends to confirm or cancel or invalidate a contract. When such inquiry is forwarded for the party with the right of invalidation or cancellation, he is duty bound to respond. If the party fails to respond, the contract is presumed to have been invalidated. Failure to respond gives the other party the right to make a contract ineffective. When an obligation of a contract extinguishes owing to invalidation and cancellation there are certain effects which are worth discussing. For the most part, the effect of invalidation and cancellation of contract is extinction of a contract. After a contract is invalidated or cancelled the obligations created by the invalidated or cancelled contract disappears. There is no more contractual obligation to be discharged. Extinction of contractual obligation does not however mean that there is not any obligation left to be carried out by the obligation. If one of the parties or both have discharged their obligations, invalidation or cancellation will create obligation of effecting restitution. Article 1815 is provided with this implication as: Art.1815__ effect of invalidation or cancellation (1) Where a contract is invalidated or cancelled, the parties shall as far as possible be reinstated in the position which would have been existed, had the contract not been made. (2) Acts done in performance of the contract shall be of no effect. From the above Article do you think the effect of invalidation and cancellation are the same? If not what are the differences and the rational behind it? According to sub Article (1), the parties are required to be put in their original position before the formation of the contract. The parties are expected to be with their original properties before the contract. After the formation of the contract the parties are put in different position because of the newly created obligation. All or part of the obligations might have been Page | 12 performed. If invalidation or cancellation happens the parties are put in their previous position in that the performed obligations are reinstated. Sub Article (2) confirms the above assertion putting specific effect. Any party who has performed can invalidate the performance. Someone who has given something to discharge his obligation can reclaim the thing given. A party who has given a car in consideration of price shall give back the car and take back his money. A question as to whether cancellation and invalidation are the same, excepting a titular difference, may be raised if the effect of both is reinstatement under the law of contract of Ethiopia. Although cancellation might be followed by compensation, invalidation can also be followed by compensation according to Article 1817 (2), as it shows that payment of compensation shall be made for parties to reinstate them. However, difference still exists in their effect as cancellation paves the way for compensation that puts the victim in the place he would have been had the contract been performed. Article 1790 (1) shows that damage shall be made good for injury of non-performance of contract. When the reason of damage is non-performance perfect expectation damage is understood. The possibility of forced performance and damage together strengthens the inclusion of perfect expectation damage. Invalidation is, on the other hand, followed by compensation that puts the victim in his original position. Such effect also exists in Ethiopian law of contract pursuant to Article 1817 which shows that the compensation shall be aimed at reinstating the party in his original position. Eventhough this provision is equally applicable to cancellation, cancellation can also be followed by additional damage pursuant to Article 1790. The reinstatement effect of invalidation and cancellation is not made without limitation in a way it hinders security of transaction in parties which have no and are not expected to have information about the cancellation or invalidation. An act that is made in performance of a contract is not subjected to invalidation if such invalidation affects the interest of third parties. Article 1816, which protects the right of third parties, aims at the said purpose saying: Page | 15 Agreement to terminate is, actually, a contract as a contract can be to extinguish obligation of proprietary nature. Termination of contract by agreement is in light with the definitional provision of Article 1675, which shows that agreement to extinguish obligation of proprietary nature is a contract. Termination of contract by agreement can be made in two ways. The parties may effect termination pursuant to their contract provided that they have inserted such termination clause in their contract or agreed later. The termination clause may also entitle one of the parties the power of termination unilaterally. It may also put a condition upon the fulfillment of which the contract is terminated. Eventhough the parties might not agree in the contract about termination and its condition, they can also agree later to terminate the contract. Termination of contract by consent of the parties provided under Article 1919(1) includes all that are discussed above. B) Unilateral termination Unilateral termination is made either by the effect of agreement when such unilateral termination clause is provided in their contract and when a condition which entitles unilateral termination is fulfilled. Unilateral termination can also be made by giving notice in advance. The time of notice might be either fixed by law, by custom, or reasonably by the contractants C) Judicial Termination In addition to unilateral and bilateral cancellation, cancellation can also be made when one of the parties requires to that effect. Court termination is the principle and termination by the parties is an exception as parties shall not be judges on their own case. Although termination extinguishes obligation, the way it extinguishes such obligation is different from the manner of extinction of obligation by invalidation and cancellation. Termination does not have retrospective effect; rather it has prospective effect. This means, extinction of contractual obligation by termination of contract works only in the forwarding direction from the time the contract is terminated regardless of its type. Page | 16 We have seen termination which can be made by agreement either together in the contractual agreement in the contract or independently after the contract and without agreement unilaterally by either parties as well. Moreover, a contract can be terminated by the court, as it can be inferred from Article 1823 and 1824. Article 1823_ Special relation between the parties A party may apply to the court to order the termination for a contract, which requires a special confidence, cooperation, or community of views between the parties and where such requirements are no longer present. If the previous confidence, cooperation or community of view that helps the continuity of the contract ceases, the contractual relationship might not be worthy upholding. In this connotation an application may be made to the court to that effect. The court has actually the discretion to the extent of identifying whether the requirement of special confidence, cooperation or community of view ceased or not. In addition to the cessation of special relation between the parties, gratuitous contracts also entitle the party who has made such grant the power of having the contract terminated by requesting court order. Article 1824 has provided the above connotation as: Art. 1824__ Gratuitous contracts. The court may order the termination of a contract made for the exclusive advantage of one party where the other party for good causes so requires. The provision has provided certain requirements so that the contract is terminated. Primarily. The contract shall be for gratuitous in that the contract is made for the exclusive advantage of one party; it shall not be for consideration. There shall be good because that makes the party require termination. The requirement of good cause is not alterative requirement rather it is cumulatively required so that such contract can be terminated. Whether the party has good cause to terminate the contract or not is to be decided by the court and thereby needs interpretation. Good cause shall be interpreted to mean a cause for the Page | 17 existence of the contract such special relationship that fosters such contract and other causes which are relevant to the case. Let us illustrate this by taking a hypothetical case. Ato Abebe gratuitously assumed the obligation of giving 300 Ethiopian Birr for his unemployed brother. Ato Abebe can have the contract terminated starting from the time his brother got a job elsewhere. In this hypothetical case the employment of his brother can be a good reason if Ato Abebe entered into that contract for the exclusive advantage of his unemployed brother thinking of his unemployment. 1.3.2 Similarities and differences between invalidation and cancellation on the one hand and termination on the other. The basic difference between termination on the one hand and invalidation and cancellation on the other is their effect. The ground of termination is not again attributable to defect in the formation of a contract or non-performance on one of the parties. Termination can be made by agreement, unilaterally by one party or by court order. However, the grounds of invalidation and cancellation are defect in consent and non-performance in accordance to the terms of the contract respectively. In relation to the effect of the two categories as stated above, invalidation and cancellation have retrospective effect while the effect of termination is prospective. Article 1819 Sub (2) and (3) are obvious in indicating the prospective nature of termination. Quite the reverse, Article 1815 is testament for retrospective effect of invalidation and cancellation. Let us take an example of this and assume that Ato Ahmed agreed with a coffee trader in which he agreed to pay the trader 300 birr per quintal in consideration to get 100 kgs of coffee every month. If the contract is terminated the parties are not required to give back what they have given to each other. And they are no more required to carry out their obligation as of the time of termination. If the contract is invalidated or cancelled, however, Ato Ahmed shall give back 100 kgs of coffee of every month and get back his money. If the coffee is consumed the restitution effect of invalidation or cancellation can be difficult. However, the restitution effect is still effect of Page | 20 Do you think that one or all of them are novation or not? The change of place is not novation. Neither the nature nor object of the original obligation is different. Change of sugar by coffee is, however, novation as the object of the contract has been substituted. When original obligation is different from the substituted obligation in its cause it is also considered to be novation. Illustrative example has been provided by Rene David: “Suppose, for example, that B owes A $10,000 for some goods he purchased from him; it is agreed later in the new contract that B will keep the $10,000 as a loan from A. This is novation by change in the cause: B’s debt has the same object, but henceforth, it has a different cause. B owes $10,000 because A lent it to him, not because he purchased the goods from him. Novation is required to be intentional so that it can have the desired consequence in accordance with Article 1828. Article 1828__ intention to extinguish the original obligation. Novation shall not occur unless the parties show the unequivocal intention to extinguish the original obligation. Replacement of certain obligation with other obligation in the absence of intention to make novation does not have the effect of novation. Actually knowing intention can be of certain impenetrability, the apparent activities of the parties can be inference for the presence of intention, though. The apparent acts of the contracting parties can be used as an inference to reach conclusion regarding the presence of intention. The negative meaning of novation in Article 1829 helps to explain it by providing cases ; novation may not occur as stated below. Article 1829 __Absence of novation. Unless otherwise agreed, novation shall not occur where; a) a new document is prepared to support an existing debt; or Page | 21 b) the debtor signs a promissory note or bill of exchange in respect of an existing debtor c) new securities are provided to ensure payment of an existing debt. All the acts provided in Article 1829 do not show substitution of an existing obligation with a different obligation in its nature or object. Preparing of a new document to support an existing debt, signing of a promissory note or bill of exchange in respect of an existing debt does not show novation and nor does providing securities to ensure a debt show ovation. There might be ambiguity as to whether the lists of 1829 are exhaustive or not. In relation to this, whether signing a promissory note or bill of exchange excludes signing other negotiable instruments might create perplexity. Albeit the presence of such ambiguity, Article 1829 is on illustrative list by which other acts, which are not novation, are included. Its illustrative nature is also strengthened by the definitional provision of Article 1826 and the additional illustration of absence of novation in Article 1830. Had Article 1829 been exhaustive the definition would not have been necessary as the definition is wider in scope than the negative meaning of novation in Article 1829. Moreover, positive meaning of novation in Article 1830 would have been again unnecessary had it been exhaustive. Because if it is exhaustive the contraries reading of 1829 would tell us that acts other than the lists of Article 1829 are novation. When we see Article 1830, it incorporates negative and positive meaning of novation in case of entry of credit and debit in current account. 1830- Current account. (1) Novation shall not result from entry of credit and debit items in a current account. (2) Novation shall occur where the balance of an account is finalized and admitted. (3) Unless otherwise agreed, the creditor shall retain such securities as may attach to one of the items entered in a current account not with standing that the balance of the account has been finalized and admitted. Page | 22 Sub Article (1) of Article 1830 shows that mere entry of credit and debit items in a current account does not show novation. Parties who have contractual relationship of current account are usually expected to make their balance debt and credit that will later be finalized and admitted. Entry of debit and credit in a current account before finalization and admittance does not show novation although it might resemble it. In sub Article 2 of 1830 however, the presence of novation has been denoted when the balance is finalized and admitted. After the debits and credits are calculated and put in a final result, the contract would be clear with their position either as a debtor or creditor. The contractants would either admit the final result or oppose. If they or one of them protest, further analysis would be made by the contractant and other relevant professional. Once the final result is admitted, novation is presumed to have been made. The obligations in respect of specific items have been, after admittance, substituted by the analyzed upshot of debit and credit in the current account. The connotation behind such novation is that a debt in respect of certain item in a contract of current account is replaced by the final result of finalization and admittance. The nature of the obligation is changed. Novation in current account does not, however, result in all the effects of novation according to Article 1830. Securities attached to one of the items entered in a current account do not extinguish even after novation unless there is contrary agreement. Had it been novation other than in current account, however, securities would have not been transferred to the new obligation because of novation. Extinction of collateral obligation as one effect of novation has been provided under Article 1827. 1827- Effect of novation (1) Unless otherwise expressly provided, securities or privileges attaching to the original obligation shall not be transferred to the new obligation. (2) Unless otherwise expressly provided interest due prior to novation may not be recovered there after. Page | 25 and negative conditions respectively under Articles 1832 and 1833. Article 1832 has put the positive conditions as: Article 1832–positive condition Set off shall not occur unless both debts are money debts or relate to a certain quantity of fungible things of the same species and both debts are liquidated and due. The conditions that are provided in Article 1832 are. (a) The debts shall be money debt or fungible things of the same species. (b) The debts shall be liquidated. (c) The debts shall be due. Set-off is not possible if someone owes in item and the other owes in money. Nor is set-off possible when the debts are items unless the items are fungible things. The money debt or fungible things shall also be liquidated ones in that the parties should be certain about the debt. The parties shall not have a dispute as to the amount of the debt. If the amount claimed by the creditor and the amount accepted by the creditor is not equal, the debt requires further liquidation. In such disagreement the debt is not liquidated and hence not subjected to set-off. However, although the debt is required to be liquidated so that the court can make set-off when it is required to do so, there is exception to the requirement of “liquidation” of the debt. According to Article 1841 eventhough one of the debt is not liquidated, the court may decide that set-off has been made to the extent of the admitted amount. Assume that Ato Mesfin claims to owe Ato Zeberga birr 500,000 while Ato Zeberega admitted to have owed only birr 300, 000 and denied the birr 200,000( is contested). In such a case, although birr 200,000 is contested, the debt to the extent admitted (birr 300,000) can be subject of set-off. The other exception is when the debt can be liquidated without delay. A debt whose amount is contested by the parties or which is not fully liquidated can be delayed so that set-off is made with regard to the whole debt. The court may suspend judgment against the debtor whose debt Page | 26 is liquidated until the other debt is liquidated if the debt can be liquidated without delay. These are exceptions to the condition that the debt shall be liquidated so that set-off is made. The other condition is that the debt shall be due at the time set-off is required. The time when both obligations are required to be performed shall be at the same time. If one of the debts is to be paid on September 1 and the other debt is to be paid on October 3, set-off cannot be made with regard to these two debts on September 1 since both debts are not due by then. This requirement protects the debtor who can be beneficiary of time limit. The one who shall perform the obligation in October 3 is the beneficiary of time limit and refusal of set-off is not to affect such contractant adversely. An exception to this requirement has been provided under Article 1834 dealing with period of grace. Granting of period of grace does not bar set-off although the time in which payment shall be made is protracted by the court order of period of grace. A debtor who is given period of grace shall not be protected against set-off like other beneficiaries of time limitation. Although the debts are liquidated and due, there are also other requirements which shall be additionally fulfilled. Additional negative conditions have been provided under Article 1833. 1833 Negative conditions Set –off shall occur regardless of the cause of either obligation except where a. the special nature of the obligation requires that the creditor be actually paid , as in the case of maintenance or wages necessary for the livelihood of the creditor and his family; or b. the obligation is owing to state or municipality ; or c. The obligation is to restore a thing of which the owner has been unjustly deprived ;or d. The obligation is to return a thing deposited. If the special nature of the obligation harmfully affects one of the parties when set off is carried out, set off is prohibited for such kinds of obligation. Someonewho lives on a maintenance payment might be in another transaction with a debtor( the person under Page | 27 obligation to pay him maintenance ); if his maintenance payment is set off he might be in a position not to live. If he is refused payment of his maintenance payment for he is debtor, his life might be endangered. Protecting such undesired consequence of set-off begs providing of exceptions to set-off. An obligation owing to state or municipality is not subjected to set-off because the action by which the state or municipality become debtor and creditor can be different. In such a case set off can mess up the accounting system of the state or municipality. Excluding an obligation to restore a thing unjustly taken from being subject of set-off is to deter unjust deprivation of property and recognize its immoral nature. Excluding such obligation has great social importance in deterring unjust deprivation of properties like theft. Allowing set-off with debt owing to unjust deprivation on the other hand entails negative connotation of encouraging deprivation. When the obligation is to return a thing deposited, it is not again subject of extinction by set- off. The basic reason for this is actually to give protection and encourage the trust built among parties. It is a confidence that makes a party deposit something with some one. Such special confidence is required to be created and protected for the sake of smooth social relationship. Obligation to return a deposited thing is excluded from being extinguished by set-off to achieve the said purpose. Be that as it may, set-off cannot be made in the absence of intention to do so. Article 1838 provides that if the debtor fails to inform the creditor his intention to effect set-off, set-off does not occur. Knowing intention can be difficult as there is no proof of mental element of the parties. Circumstances from which the mental element of the parties can be inferred should be considered. Set-off cannot be made upon the proposition of the court. The court is strictly prohibited from making set-off unless it is raised. Parties do have freedom of contract about set-off with regarded to obligation they assumed reciprocally. Parties may wave their legally permitted right to require set-off. Article 1839 to this effect has provided that the debtor may in advance waive his right to make set- off. Page | 30 Contracting parties are not allowed to set-off their debts if it is going to affect the rights of third parties. Extinction of obligation by set-off “shall not affect rights which third parties have on one of the debts.” Extinction of obligation has effect only between the parties whomake set-off. Assume that Ato Yeselam owes to Solomon and Ato Stiffo Birr 1000 each. In another transaction Solomon owes Stiffo Birr 1000. If Yeselam and Solomon make set–off, the right of Stiffo to recover his money form Yeselam‟s receivables may be at stake. Therefore, Stiff can protest set-off, as it is detrimental to him. At least its effect on third parties shall be protected. A bit of perplexity might be created with regard to appropriation of payments. Appropriation of payment in the case of set-off has been provided in Article 1835 of the civil code in its wording as: “Where several debts liable to set-off are owing from the same person, the set- off shall be made in accordance with the provisions of chapter 2 of this Title relating to appropriation of payments” (Art. 1752-1754 of the C.C). When set-off is made with a person who has claims related to costs, interests and principal debt, set-off extinguishes first the cost, then the interest and finally the principal debt pursuant to Article 1752. When set-off is made against a creditor who has several claims, the debtor who wants to effect set-off may specify the debt which is extinguished by set-off. However, if the debtor, who effects set-off, does not exercise his right of specifying the subject of set-off, the person who has several claims may specify the subject of set-off among his several claims according to Article 1753. When both parties do not specify the subject of set-off among the several claims, the law fills the gap as provided under Article 1754. Accordingly, the debt which is due or where none of them is due, the debt which shall first become due shall be subject of set-off. When there are several debts which become due at the same time, the debt which is of greater advantage to the debtor shall be extinguished by set-off. As far as debts which are of the same advantage to the creditor are concerned, such several debts shall be extinguished proportionally. Page | 31 Rene David illustrates this well. Assume A owes B 1000 and B owes A 1000. B also owes another 1000 because of another transaction. All these debts are liquidated and due. Both debts extinguish reciprocally immediately when they exist simultaneously up to the amount of the level of the two debts. 1.7. Merger Among the grounds of extinction of obligation, merger is also one. Merger in extinguishing the contractually created obligation has certain peculiar effects on the contracting parties and the third parties. This section will, accordingly, discuss merger, along with its peculiar characteristics. Objectives After discussing this topic, students are expected to  Understand the meaning of merger and how extinction of obligations happens  Identify the effect of merger on the contractants and third parties  Exemplify how merger can revive Merger is another method by which obligation extinguishes. Merger happens when the position of creditor and debtor becomes one and the same. There are different reasons for merger between debtor and creditor. Successions, formation of partnership are among the juridical acts which result in merger. Merger makes the debtor and creditor the same person. If we see Article 1842 of the Ethiopian civil code the principle of merger in extinction of obligation has been put verbally as: Art.1842__ Principle Merger shall occur and the obligation shall be extinguished where the position of creditor and debtor are merged in the same person. Page | 32 Performance of obligation after merger is not actually realistic once the creditor and debtor become the same since performing certain obligation towards one self is actually absurd. Assume Ato Haile borrowed 25,000 birr from his father, Ato Aklilu; however his father died before collecting the debt from his son, Ato Haile. The later is the only successor of his father, Ato Aklilu. Here we can say that Ato Haile becomes the owner of the property of his father including the 25,000 Birr. It is not feasible for Ato Haile making payment to himself. The position of Ato Haile merged with that of his father. The obligation to pay his debt is then said to be extinguished by merger. Extinction of obligation on the account of merger has certain limitations in its effect of extinction of obligation. The limitation is when it affects the right of third parties. Merger shall not be made to the prejudice of the interest of third parties, which have a right on the debt. Article 1843 of the civil code is provided in a way such rights of third parties are enshrined. Art.1843.__Rights of third parties Merger shall not affect the rights which third parties may have in respect of the obligation. The protection of the right of the third party gets its strong support from the privity principle provided in the definitional provision of Article 1675, 1731 (1) and 1952 (1). Third parties may have a right on the credit which is subjected for extinction by merger. The right of third parties shall be protected to avoid the externality effect of merger. When third parties who have usufruct right or pledge on the credit, such right is not subject of extinction though the main obligation on which such right depends could be extinguished by merger. For example, Ato Yidnekachew is a creditor of Ato Zinabu, his only son, for the extent of 1,000,000 Birr. Kemal is entitled to get the interest of the debt of Zinabu by dint of another transaction with Ato Yidnekachew. If Ato Yidnekachew dies Zinabu will succeed him and the obligation of paying 1,000,000 extinguishes, as there is merger. However, the merger, which extinguishes the principal obligation, does not extinguish the obligation to pay interest pursuant to Article 1843. Page | 35 Period of limitation is one classification of prescription that includes libertive and acquisitive prescription. Liberitive prescription relieves the beneficiary from certain obligations after the lapse of certain period of time. In liberative prescription there can be limitation of right and limitation of action. Limitation of right absolutely extinguishes the right of the other party while limitation of action extinguishes the right to bring action i.e. court action. The Ethiopian law of contract under Article 1845 provides the principle of period of limitation. Art.1845__ Period of limitation Unless provided by law, action for performance of a contract, action based on non- performance of a contract and action for invalidation of a contract shall be barred if not brought within ten years. According to this provision “action for performance” refers to bringing a court action to effect performance, “action based on non-performance of a contract” refers to bringing court action aimed at remedies of non-performance like damage, cancellation and even forced performance, and “action for invalidation of a contract” refers to bringing court suit to have a contract invalidated. All these actions shall be barred unless brought forward within ten years. Discussing whether period of limitation bars right or action is on issue worth discussing. In dealing with this, the title of the section where the provision is found connotes that it limits action. In addition to that the French version equivalent to this provision (Article 2262) limits all actions. There are also provisions that show the possibility of existence of certain rights even after the lapse of the prescribed time. Article 1850, showing that limitation does not bar the right exercised on pledge even when period of limitation bars the principal obligation, exemplifies such provision. On the other hand, it is argued whether this provision limits all rights out of the contract albeit the indication of its title. Professor Rene David has put this position in his commentary as: “The Ethiopian code preferred the formula found in the Italian civil code which provides that Page | 36 all the rights are subject to ten years limitation.” He has confirmed this position denoting that the right created by the contract disappears by limitation; it can be asserted in anyway. The controversial issue in light of period of limitation is the relationship between Article 1845 and Article 1810. The time when period of limitation starts to count has been put under Article 1846 of the Civil Code as: Art.1846__ Beginning of period of limitation The period of limitation shall run from the day when the obligation is due or the right under the contract could be exercised. Period of limitation for action based on non-performance does not for example beginto run from the time of the formation of the contract unless performance shall be made immediately. If the time of performance of the contract is after one year from the formation of the contract, period of limitation runs one year from the formation of the contract as the obligation is due after one year. The provision additionally solves the problem with respect to certain obligations like conditional rights, which are treated separately as made in Article 2257 of the French Civil Code. The French Civil Code deals with each right which can be due or claimed at another time from the time of formation of contract. Conditional right cannot be exercised till the condition is fulfilled and it is then when period of limitation runs. Ambiguity that could arise in respect of annuities has been covered by Article 1847 where limitation runs from the day the first payment was not made was due. Article 1847 has clarified the perplexity verbally as: Art.1847- Annuities. In respect of annuities, the period of limitation shall run from the day when the first payment not made was due. Page | 37 In annuities the due date of the payments is different. One payment is paid first and the following will be paid next. The Civil Code makes the time of the first payment a reference for counting period of limitation in respect of annuities. Someonewho is entitled to be paid every May 1 and November1 is not, for example, paid as of 1960 till 1975. It is questionable if his right is barred for his claims staring November 1, 1960 – November 1964 as these payments have been due for more than ten years or he has lost all his right since ten years has lapsed before the rights are asserted. According to Article1847, all the rights are barred starting from the time when the first payment which was not made is due. Haziness, which can be created by way of assessing a year whether in weeks, days or hours, has been dealt with under Article 1848. Accordingly, the period of limitation shall run from the day when the obligation is due or the right under the contract could be exercised and is effective, excluding the day on which period of limitation begins to run. The action is barred upon the expiry of the last day without having been used. If the remaining last day for the effect of period of limitation is a holiday, the action shall be debarred on the next working day. According to the exemplification of David “If a claim is due on March 3, 1955, the period of limitation will be completed on March 4 1965 at the very beginning of the day” (6:00Am considering Ethiopian way of dividing days into hours). Principally period of limitation is one way by which obligation extinguishes. Extinction of principal obligation might have different effect on the collateral obligations attached to it. The effect of period of limitation on collateral obligations has, accordingly, been treated under Article 1849 and 1850. Art.1849__Collateral claims. Interests and collateral claims shall be barred where the principal claim is barred. Page | 40 Art.1853 __ Special relationship between the parties. (1) The court may set aside a plea based on limitation where it is of opinion that the creditor failed to exercise his rights in due time on the account of obedience he owed to or fear he felt of the debtor to whom he is bound by family relationship or subordination. (2) In such a case, third parties who guaranteed the payment of the debt shall however be released. If for example a employee of Ato Haile fails to exercise his right to require payment of 1000 Birr, which he lent to his employer, and his right is debarred by period of limitation, the court may set aside plea of period of limitation. If Kebede lent 5000 Birr to his father and 10 years lapsed before he requires repayment, the court may disregard period of limitation if his father invokes period of limitation. The court does not, however, have such discretion with regard to third parties who guarantee payment. Third parties are required to be released of their collateral obligation pursuant to Article 1853(2). Although the value of good faith has paramount importance in law of contract, bad faith of the parties is rarely considered in enforcing period of limitation. The beneficiary of period of limitation can raise period of limitation contrary to good faith according to Article 1854 of the civil code. Period of limitation is a mandatory way of extinction of obligation and is not subjected to the agreement of the parties. They can never waive it in advance by agreement, nor can they fix period of limitation other than that fixed by law. Such prohibition has been provided under Article 1855 as: Art.1855.__ Contrary provisions. The parties may not in advance waive limitation nor may they fix periods of limitation other than those fixed by law. Page | 41 It can, however, be waived after it has been due. Beneficiary of period of limitation is at liberty to waive period of limitation after it has fallen due. Failure to raise period of limitation is considered to connote waiving of the defense of period of limitation. In light of this, Article 1856 denotes the above connotation. Art. 1856__ waiving of limitation. A party may waive limitation after it has become effective. The court shall not have regard to the period of limitation unless pleaded. It is questionable if this is equally applied to Article 1810 which says, “No contract shall be invalidated unless an action to this effect is brought within two years from the ground for invalidation having disappeared.” The phrase “No contract shall be invalidated” seems to impose obligation on the court not to allow invalidation eventhough plea of limitation is not raised. Discuss: What is your position regarding the above issues? Chapter Summary Obligation created by contract does not exist forever. Sometimes it is natural to extinguish it for different reasons. Normally, a contract extinguishes when it is performed according to the agreement. In addition, contractual obligation can also be extinguished by invalidation, cancellation, termination, limitation of action, set-off, novation, remission of debt and merger. When a certain contract is invalidated for the presence of defect in the formation of the contract, there will be no obligation to be performed. The same holds true once a contract is cancelled owing to non-performance of an obligation in the term of the contract. When a contract is terminated the obligation of the parties ceases prospectively starting from the time of termination unlike that of invalidation and cancellation which have retrospective effect. Page | 42 Remission of debt, which can be accepted by silence, is among the other grounds of extinction of contractual obligation. When contractants replace an existing obligation with another new obligation in its nature the previous obligation extinguishes. Novation is different from variation as the previous obligation is replaced in novation unlike variation in which the obligation is modified. Novation extinguishes the obligation along with its accessory obligations. Set-off, which happens when contractants are creditors to each other in different transaction upon the fulfillment of certain conditions, extinguishes contractual obligations, as well. It can be undertaken only if the debts are money debts or fungible things of the same species. The extinction effect of set-off is strongly limited to the extent of not affecting the right of third parties. Merger with its peculiar effect brings an obligation to an end. It happens when the debtor becomes creditor at the same time. Unlike other ways of extinction of obligation, merger shall not affect the right of third parties on the obligation. Period of limitation, which bars the party from requiring any effect of the contract, has also been put as a ground of extinction of obligation. Once certain period of time lapses, the creditor is prevented from enforcing his right against the debtor or the debtor can be relieved of his obligation invoking period of limitation. The court cannot, in its own motion, invoke period of limitation. Rather failure to invoke the defense as a preliminary objection, results in presumption of waiver of the defense. Generally, when an obligation is extinguished for any reason there is no legal mechanism to enforce it. The capacity of enforcing the obligation might vary depending on the ground of extinction of obligation. Obligation which extinguishes owing to merger and performance does have different impacts on the contractants. Page | 45 2.1. Provision as to time Contractants may more probably provide the time of performance within certain period of time without specifically stating the time. They may also provide the time in certain number of weeks, months, or ambiguously on first, last, or middle of a month. The presence of different days in months in Gregorian calendar and the presence of thirteen months in Ethiopian calendar might continually and unexpectedly create gap as to time. This title aims at filling gaps that happen with reference to time. In doing so, it settles gaps which may be created when time is fixed to be after certain period of time from certain date, within certain period of time, in weeks and months, when a holiday lies in between, and other related gaps. Objectives Dear learners, after you have read this section, you are expected to specify the exact time when:  The time is not specific but rather given within a certain period of time  The time is fixed in days, weeks, months,  The time is fixed in the first, last or middle of a month  The last due date is a holiday Provisions as to time generally deals with the time at which performance is due in order that the debtor can be clear as to exactly when to perform his obligation. Article 1857 declares that calculation of time as to when an obligation is to be discharged after certain period of time from the date of the contract or any other date is to be considered as of this provision. These provisions generally deal with fixed days, weeks, months and other period of time like holidays. Article 1858, destined to cover time fixed in days, states that the debt to be due on the last day of such period without including the day of the conclusion of the contract. Page | 46 For example, Mr. Aragaw promised in a contract made on 5/3/2000 to perform his obligation in 7 days from the formation of the contract. The last date for the performance of the contract is on 13/3/2000. In counting the days 5/3/2000, the reference time, is not counted. That‟s why the last date is not 12 but 13. Time in contract can be fixed in weeks. Article 1859 reveal the calculation of the period fixed in weeks. If the time is fixed in weeks, the day of the last week that corresponds by its name to the day of the formation of the contract is the due date. To illustrate, assume Samson concluded a contract to perform his obligation on Monday Sene 1/3/1998. He agreed to perform his obligation after three weeks from the making of the contract. The due date is then Monday 22/1998.Monday in the time of formation of the contract shall be corresponded to Monday in the time when performance shall be made. When the time is fixed in months, Article 1860 portrays the ways of computing the time. According to Article 1860, the last date is the day of the last month which corresponds the day of the making of the contract in number not in name. For example, the last date for someone, who entered into contract on June 1, 1998 promising to perform his obligation within four months, is Oct 1, 1998. Sameness shall be in date not in name. The date in the formation of the contract is 1 and the date of performance shall also be Sometimes certain dates of a month in Gregorian calendar might not have corresponding number in other months. The absence of corresponding number might create uncertainty whether it will be transferred to the next month or it will be the last day of the month, which does not have a corresponding number. Gap filling function of such uncertainty has been played by Sub Article (2) of this provision. Sub Article (2) of this provision, dealing with period fixed in Gregorian calendar without a corresponding date for the day of the making of the contract, stipulates the due date to be the last day of the last month. Page | 47 The due date of someone who concludes a contract on October 31 to perform his obligation in four months is February 29. Normally the corresponding number shall be 31. But there is no such number in February. This is because February does not have the date 31. Its last date is 29. Accordingly, the due date is February 29. In addition to the cases where there is no corresponding number in Gregorian calendar, peculiar Ethiopian calendar with thirteen months also begs gap-filling provision. As the thirteenth month has five or six days, the probability of not getting corresponding date is more probable. This creates two choices which are either totally ignoring the month or ignoring the month when there is no corresponding date and considering it when there is corresponding date in it. The Ethiopian Civil Code prefers totally ignoring the month as it can bee seen under Article 1860 (3) which says that “The thirteenth month of the Ethiopia Calendar shall not be taken into account”. The thirteenth month of the Ethiopian calendar is disregarded pursuant to Sub Article (3) of the above mentioned provision when the periods are fixed in months. For example, assume that a contract was made on Hamle 10 and stipulated that the obligation will be discharged within four months. The due date is Hidar 10 without considering Pagumen. Pagumen/thirteenth month is not considered. It must be born in mind that contract concluded in Pagumen is considered to have been concluded in Meskerem. A contract concluded on any day of pagumen is considered that it has been made on Meskerem 1 in the Ethiopian calendar. Sometimes, contracts may stipulate time provisions with less clarity using expressions like, at the beginning, in the middle or at the end of a certain month. Stipulating such indistinct expression can puzzle parties with reference to the exact time. Article 1861 provides a way out for such vagueness. Art.1861.__Monthly periods. Where the period expires at the beginning or at the end of a month, such period shall expire on the first or on the last day of such month. Page | 50 Where the period is fixed for the exclusive benefit of the creditor, he shall, where necessary, grant a reasonable period of time for the debtor to discharge his obligations. The provision allows the creditor to demand performance before the lapse of the agreed time, if the period is fixed for his exclusive advantage. Be that as it may, the creditor is required to give a reasonable period of time for the debtor to discharge his obligation pursuant to Sub Article (2). Article 1868 extends protection to a creditor whose interest might be jeopardized by an insolvent debtor with benefit of time. This provision entitled “Loss of benefit of time,” says verbally “The debtor whose insolvency has been established or who has reduced the value of the securities given by him to the creditor shall lose the benefit of the agreed period of time.” If insolvency of the debtor is established or if the debtor reduces the value of securities, benefit of time cannot be invoked against the creditor. The reason seems reduction of value of securities and establishment of insolvency reduces the paying capacity of the debtor and imperiled the creditor when time passes. 2.2. Conditional Contractual Obligations Contracting parties are free to design their contract as far as they do not contradict the mandatory provisions of the law which cannot be set aside. Providing a condition upon the fulfillment of which the effect of contract depends is one way by which contractants exercise their freedom of contract. Providing a condition is one way by which parties may determine the fate of their agreement. It can thereby help them cope with the contingencies. Accordingly, contracting parties can make their contract conditional as a whole or one of its terms. A contract to which condition is attached is covered by this section. While discussing the conditional contract, this section provides the meaning of condition, the obligation of the parties to a conditional contract, the types of condition along with their effect, the relationship between the condition and the contract with reference to validity. Page | 51 Objectives After discussion on this topic students are expected to be able to  Explain what condition is under the civil code  State the acts, which the parties can do before or after the fulfillment of the condition  State the two types of conditions along with their effect on the contract  Explain whether validity of the condition affects the contract Such freedom of contract is enshrined in Article 1869, which says in its verbalization “A contract shall be deemed to be conditional where it relates to an obligation whose existence depends on the occurrence or non-occurrence of uncertain event.” According to this provision, existence of the obligations is determined by occurrence or non- occurrence of uncertain event. It is this determinant event which is a condition for existence of the contractual obligation. The determinant event shall be uncertain in its meaning. The meaning of uncertainty in Ethiopian law of contract is broader than in some other legal systems, which limits the term to mean only events whose very existence is uncertain. Professor David has defined it broadly to include uncertainty as occurrence or non-occurrence of certain event or even uncertainty as regards the time of its occurrence. The meaning of certainty is broad enough to put in a nutshell uncertainty that exist only in the minds of the parties and which depends on whether something happened or did not happen in the past. The meaning of conditional contract is expected to take all the above instances into account. For example, Ato Behailu is not sure if his brother is alive or dead though his absence is declared. He sold his house on condition that his brother is dead. This is a conditional contract though the event may have already happened. Condition determines the effect of contract in two ways. It either ends the effect of contract or makes the contract effective upon its fulfillment. Consequently, a condition can be condition subsequent or condition precedent. Articles 1871 and 1872 deal with condition precedent and condition subsequent respectively. Page | 52 Article 1871__ condition precedent. Unless otherwise agreed, the contract shall be effective as from the day when the condition is fulfilled. This provision encapsulates a presumption in favor of condition precedent in the absence of agreement otherwise. The agreement, which sets aside this presumption, shall be clear enough to help judges reach a decision that the condition is condition subsequent. The possibility of ambiguous agreement concerning whether it is condition precedent or condition subsequent call for presumption of either of them that is condition precedent. Assume that Macdona private college , which is permitted to run Diploma program, and Ato Tatek entered into a contract of employment. They said verbally “The College and Ato Tatek have concluded contract of employment on condition that the government permits the college to start a degree program.” There is no indication whether the condition is condition subsequent or precedent. It is accordingly questionable if the contract shall be effective or remain ineffective till the condition is fulfilled. To solve such problem that emanates from a possible gap, the law presumes a condition to be regarded as condition precedent. Ato Tatek can start his work or the college can have Ato Tatek start his work as in condition precedent, the contract is effective when the condition is fulfilled. Before the fulfillment of the condition the contract is not effective. Another connotation incorporated in this provision is its effect on the contract. The effect of contract starts upon the fulfillment of the condition. To illustrate assume that Ato Bergena entered into a contract where he is to sell his house if he wins DV lottery. In the case at hand the contract of sale of house will have effect only when the condition is fulfilled. The condition is, accordingly, condition precedent or suspensive condition. Article 1872 depicts the other type of condition, along with its effect. The depiction in its wording has been put as: Page | 55 To illustrate it, assume in the above example Ato Abebe bought a house, which will be given back on repayment of the price if he did not succeed his father. At the time of succession he renounced the succession. Senait can give back the house on the presumption of the fulfillment of the condition eventhough he did not succeed. The good faith requirement, which is dominantly found in contract law provision, is emphasized in contracts whose existence depends on condition as well. Article 1873 is provided to strengthen the good faith requirement provided in Article 1870. Art.1873__ Non-interference. The parties shall refrain from doing any act likely to prevent the regular performance of the contract upon the fulfillment of the condition. The connotation enshrined in this provision seems to create ambiguity. The act may prevent either the fulfillment of the condition and thereby performance or the performance of the contract. The provision is therefore doubtful if it refers for the act that prevents the fulfillment of the condition and thereby performance or directly the performance of the contract. The parties as we have seen before may prevent the fulfillment of the condition and thereby prevent the performance of the contract. The parties may also destroy, damage or alienate the object of the contract to which condition is attached. These acts clearly prevent the normal performance of the contract. For example, Ato Hailu agrees to sell his house if his wife comes from America. It is questionable if this provision prohibits the contractant from preventing the coming of his wife and thereby hinders performance of the contract or it prohibits him from selling or destroying the house and prevents the performance of the contract. The act of the parties which prevent the fulfillment of the condition has been covered under Art.1870 of the Civil Code. Extending Article 1873 to cover such acts makes the provision redundant. In addition to that, the provisions that follow Article 1873 seem to show that the act refers to acts which directly prevent the performance of the contract. Therefore Ato Hailu is Page | 56 prevented from selling or destroying the house by Article 1873 and his contractant is given the discretion to regard the condition fulfilled for Ato Hailu‟s act of prevention of the fulfillment of the condition pursuant to Article 1870 of the Civil Code. This does not mean, however, that the parties are absolutely excluded from any act with regard to the object of the contract subject to condition. Strict restriction not to do anything on the object of the contract not only renders it unproductive but also denies the holder the right to take necessary measures to protect damage and depreciation and administer the thing. Accordingly, albeit certain restrictions the holder may exercise certain acts on the object of the contract subject to condition. Article 1874 has been provided with this rationale. Article 1874__ Acts of management. Acts of management done prior who exercises the right shall remain valid where the condition is fulfilled. Damage may be claimed where such acts were done in bad faith. According to this provision acts of management are exceptionally allowed albeit the prohibition of Article 1873. Knowing what acts of management and acts beyond management are important to determine the acts which can and cannot be carried out. Discuss: What do you think are acts of management and acts beyond management? You are expected to refer to Article 2204 and 2205 in order to know these terms. Lease for term less than three years, the collection of debits, investment of income, discharge of debts, are acts of management while alienating or mortgaging real-estate, investing capitals, signing a bill of exchange, effecting a settlement, giving consent to arbitration, making donations or bringing or defending an action are acts beyond management. These two provisions are not exhaustive lists which exclude other acts. Other acts may also be included by analogical interpretation now that these lists are illustrative lists. In addition to that, whether the provision refers to condition precedent or condition subsequent is moot to be dealt with. The provision clearly relates to “any act likely to prevent the regular Page | 57 performance of the contract upon the fulfillment of the condition”. This phrase shows condition precedent as it is condition precedent which is performed upon the fulfillment of a condition. On the contrary, condition subsequent results in cancellation of the contract. Therefore it seems to refer to condition precedent. However, it seems unreasonable to allow acts that prevent restitution preventing acts that hinder performance of the contract upon the fulfillment of the contract. Interpreting the provision in a way it avoids absurdity makes it to be extended and applied to both condition precedent and condition subsequent. The provision seems sound therefore if it is applied to both condition subsequent and precedent. A buyer of an immovable under condition subsequent and seller of immovable under condition precedent are in actual control of the immovable. The act of these persons might affect the right of their respective contractants by preventing regular performance or restitution. Before the fulfillment of the condition, they are not allowed to carry out any acts beyond management like alienating, investing capital, denoting and so on. If acts beyond management are performed, they are subject to invalidation by the other party. Article 1875(1) indubitably depicts the right to invalidate such contract by the victim of acts beyond acts of management. Art.1875.__ Acts beyond management. (1) Acts beyond management done by the party who exercises the right may be invalidated where the other party requires. (2) Any interested party may require the other party to state within a reasonable period of time whether he will require the acts beyond management to be invalidated. (3) The effect of invalidation shall be as provided by Art. 1808-1818. Eventhough the parties in actual control of a thing before the fulfillment of a condition are allowed to exercise acts of management they shall be in good faith. The acts of management shall be made in good faith. It shall not, for example, be made to affect the interest of the party Page | 60 Art.1879.__Condition depending on a party (1) An obligation assumed subject to a condition the fulfillment of which depends solely on the party who assumes the obligation shall be of no effect. (2) An obligation shall be deemed to be assumed under sub-art. (1) where the promisor’s liability for non-performance of the contract is excluded in the contract. 2.3. Alternative Obligations Among the different ways in which contractants can agree is providing alternative obligations. The debtor may assume an alternative obligation where he is to discharge either of the obligations. Making a stipulation of alternative obligations may probably leave gaps as to:  Who will choose the obligation to be discharged  What would happen if one of the alternative obligations is impossible  What if such impossibility was owing to one of the parties? This chapter is allotted to deal with the aforementioned gaps. Objectives After you read this section, you will be able to  Define alternative obligation  Identify the party that is entitled to choose  State the position of the law when one of the obligations becomes impossible Alternative obligations are dealt within Articles 1880-1882 of the civil code. Alternative obligation happens in a contract when the debtor is to discharge one among different obligations. Article 1880, in principle, depicts that the debtor is released by performing either of the obligations provided in the contract. The presence of another alternative obligation casts doubt as to who is favored in choosing the obligation to be discharged. Article 1881 is about who has a right to choose the obligation to be carried out among given alternatives. Unless there is contrary agreement, it is the debtor who is entitled with preferring Page | 61 the obligation to be performed pursuant to Article 1881(1). This is not, however, without limit in that “where the party entitled to choose does not exercise his right on being required to do so such right shall pass to the other party pursuant to sub-art. (2) of the same provision.” When the creditor puts the debtor in default, stating that the debtor has to choose which obligation to discharge, if he fails to do so immediately, such right passes to the creditor. This right of the creditor becomes important for the debtor to attenuate the liability of non- performance. On the other hand, when the creditor is entitled for such choices and if he fails to do so, the choice passes to the debtor. For example, Dr. Sintayehu a public hospital employee, has borrowed birr 30,000 on March 11/07 from Dr. Mekasha , a private higher clinic owner. The agreement laid an alternative obligation upon Dr. Sintayehu either to pay back the loan on January 31/08 with 10% interest or to give two hours daily professional service for six months in the private clinic of Dr. Mersha starting from Feb 1/08. Here the law gives right to choose either obligation to the debtor (Dr. Sintayehu). Assume that Dr.Mersha on December 5/07 has notified Dr. Sintayehu to make choice of which obligation he is going to perform. However, the debtor does not reply and in the mean time the date is due. So which obligation do you think the creditor can enforce? In fact the creditor can choose to enforce either of the obligations, but in this particular case in which specific performance is mandatory, claiming the back payment of the loan is advisable since you have seen in contract- I that one cannot require specific performance in a situation where the personal liberty of the debtor could be affected. The choice of the parties as to the obligation to be performed is respected as far as it is possible. Article 1882 under its Sub Article 1 shows that once one of the obligations becomes impossible, the debtor shall discharge the other obligation. When the impossibility is owing to fault of the party that is not entitled to choose, damage is required to be paid to the party that is entitled to choose. Page | 62 2.4. Earnest There is a great deal of disagreement on the nature and significance of earnest. In spite of disagreements, it is an old and frequent practice. Earnest is considered testament for the conclusion of a contract. Objectives After dealing with this chapter, you will be able to  Explain what earnest is  Discuss earnest in comparison to contract  Identify effect of earnest There are, however, different positions as to whether earnest entitles a party the right to terminate a contract unilaterally. Certain countries adhere to the position that denies the right to terminate unilaterally. Others hold the position that earnest confers the right on a party to terminate the contract unilaterally. There are also other points of controversy, which come following the position adhered to. This section is allotted to discussing the position of the Ethiopian law of contract towards the above issues. When we see the position held by the Ethiopian law, termination of promise guaranteed by earnest unilaterally is possible upon certain limitations. Article 1885__ non-performance of a contract. (1) Unless otherwise agreed the party who has given earnest may cancel the contract subject to forfeiture of the earnest given by him. (2) Unless otherwise agreed, the party who has received earnest may cancel the contract subject to repayment of double of the amount received by him. It can be clearly inferred from this provision that a contract secured by earnest can be cancelled unilaterally by either party. The party that cancels the contract shall, however, pay Page | 65 As unconscionable contract is also subjected to invalidation, the problem related with lesionary penalty can be moot in penalty clause. It seems to put limit in determining the penalty clause with reference to unconscionable nature of the clause. Article 1710 shall, consequently, be applied to limit the extent of the amount of damage at the time of non- performance of contract. If the penalty is terribly maximum and backed up by condition that renders the party in unequal bargaining power, it is subjected to invalidation on the account of unconscionable contract pursuant to Article 1710 or to rectification pursuant to Article 1812. The validity of penalty clause is assured in light with the validity requirements of general contract provisions. A penalty clause which is made owing to mistake, fraud, duress and undue influence is subjected to invalidation of a contract provided that the grounds which foster invalidation are fulfilled. An illegal penalty clause will not again have effect as illegal acts are required to be deterred. In light of the validity of the penalty clause, looking into the relationship between the main contract and the penalty is worth discussing. Accordingly, it is doubtful as to the effect of invalid contract on valid penalty clause and the effect of invalid penalty clause on the main contract. Article 1894 indicates their relationship. Art.1894. __ Invalidation. (1) A penalty shall be of no effect where the contract in which it is prescribed is invalidated (2) A contract shall remain in force notwithstanding that the penalty is not valid. Illustration: assume Ato Belay entered into contract with Ato Gadissa owing to mistake. The contract is backed up by penalty clause. If the contract is invalidated the penalty will not have effect, pursuant to sub-Art. (1) of 1894. Assume in the above example Ato Belay and Gadissa concluded a valid contract. Later Ato Belay agreed to a penalty owing to mistake. In this case the main contract is valid although the penalty is invalidated pursuant to Sub-Art. (2) of the aforementioned provision. Page | 66 Assume for example. Anbassa shoes factory employed Ato Chanyalew for one-year contract deceived by false documents. The factory assumes penalty of 1000 for breach of contract before one year. In the case at hand if the main contract is invalidated, the penalty is of no effect. Let us assume that there was no penalty clause in the main contract but the penalty clause was inserted because of intimidation that amounts to duress made by Ato Chanyalew on the manager of the factory. In this case only the penalty clause is invalidated and the main contract remains effective. Contractual sanctions which are not specific enough are seen with suspicion. Consequently, such contractual sanctions are subjected to court verifications as to whether the agreed sanctions may be applied. The other equivocal point in this provision is when the contract is not invalidated. It sheds doubt if a party that can invalidate a contract may refuse performance and refuse penalty without invalidating the contract as the provision in its phrase “…is invalidated…” seems to connote that invalidation a precondition to make the penalty effective. When a contract is invalid, however, the party may simply refuse performance without invalidating the contract. This power of a contractant who is adversely affected by an invalid contract shall be extended to a penalty clause. Fixing of penalty does not imply the discretion of the debtor either to perform or pay penalty. It is rather upon the discretion of the creditor either to require performance or effect penalty unless they clearly deprive the creditor of such right by agreement. One of them cannot refuse to perform to pay penalty unlike earnest where one of them can cancel the contract paying either double of the received earnest or the amount of earnest itself. If one of them fails to perform a contract backed up by penalty, on the other hand, the other party may opt for either enforcement or payment of penalty. All the same, the creditor cannot Page | 67 require both enforcement of the contract and the penalty unless penalty was provided in respect of delay or the non-performance of a collateral obligation. Article 1890 has been destined to connote the above assertion: Art.1890.__ Right of the creditor. (1) Unless otherwise agreed, the creditor may require the performance of a contract which includes a penalty. (2) He may not require both the enforcement of the contract and the penality unless the penalty was provided in respect of delay or the non-performance of collateral obligations. Let us illustrate this: Messebo Cement Factory and Sur Construction entered into a contract whereby Sur Construction will pay 100,000 penalty in case of non- performance. If Sur Construction Company fails to discharge its obligation, Mesebo Cement Factory can require either forced performance or penalty, but not both. If the 100,000 penalty was provided for failure of performance in due time or for failure of providing pledge, Mesebo Cement Factory can require both forced performance and payment of penalty. We might wonder if contractants can agree both for the enforcement of penalty along with forced performance. It is even questionable if such agreement amounts to unconscionable contract. Actually, unless there are business inexperience, necessity, senility and other instances that render the other party in a position of unequal bargaining power, the contract is valid and they can agree as they think fit. These provisions are permissive gap-filling provisions. Then enforcement of a penalty clause can be made any time without any restriction. There are conditions upon the fulfillment of which it is applied. Accordingly, Article 1891 provides that “penalty shall be due whenever the creditor is entitled to claim damages by reason of non- performance of the contract.” A person who could not have damage as a remedy of non- performance cannot be entitled to payment of penalty. Page | 70 only on the contracting parties. The burden will then shift from the party who has excluded to the other contractant not to the employee. Illustration: assume for example Sur Construction limits its liability emanating from the fault of its employees. When the employer is relived of such liability, the employee might be held liable for more than the liability he would be liable had the employer been not relieved, since both the employer and employee are jointly liable. Such liability might then negatively affect the employee. Such negative impact of limiting of liability is of no effect with regard to the employee pursuant to Article 1888 of the civil Code. Chapter Summery Providing a gap filling provision for incidents which contracting parties do not predict is among the purposes of the law of contract. In light of this, the Ethiopian law of contract has provides certain provisions with this purpose. Special terms of obligation or contracts play gap-filling role of the law of contract. Provisions as to time are among the laws, which fill the most repeatedly happening gap in contractual agreement. Accordingly, when the time is fixed in days, the day of the formation of the contract is not considered in assessing the time. Time fixed in weeks is determined with reference to the corresponding name of the last week unlike the period fixed in months, which is determined referring to the corresponding day of the last month by number. In addition to provisions of time, provisions dealing with condition also play gap-filling role. When a contract depends on the occurrence and non-occurrence of uncertain even, it is said to be a conditional contract. Condition may be condition precedent if the contract will be effective upon the fulfillment of the condition. It can also be condition subsequent if the contract is cancelled upon the fulfillment of the condition being effective before the fulfillment of the condition. The presumption is in favor of condition precedent. The other gap filling provisions provided under the civil code are provisions which deal with alternative obligation. When there is gap as to the party who will choose the obligation to be Page | 71 performed, the law fills the gap by presuming in favor of the debtor. When the party with the right to choose does not exercise his right, the other party can choose the obligation to be performed. When contractants provide earnest for their contract, this in itself is proof for the presence of a contract. It however, entitles also either of the contractant the right to cancel the contract upon causing the other party to profit the amount of earnest. Finally, provisions as to liability, with certain restrictions on the freedom of contract, have been provided. The parties are free to either extend or limit their liability subject to the mandatory provisions. Unconscionable nature of a contract and negative impact of exclusion of liability on third parties, are the ones among the limitations. Generally, provision as to time, condition, earnest, provision as to liability are all about the fate of a contract which is not fully addressed with reference to the said incidents. The law fills such gaps and provides mandatory provisions to protect the very purpose of a contract. Review questions 1. Ato Mesele, an academic staff of Mekelle University got scholarship in Norway. Mekelle University wants to have him sign a contract, which shows Ato Mesele, will serve the university the whole of his life or pay a penalty of 1,000,000. The actual cost Mekelle University incurs is 40,000 Ethiopian Birr. Ato Mesele signed the contact for he was in need of the scholarship. a) Can the university require both forced performance and the penalty? b) Deal with the validity of the contract along with its penalty. 2. Berhane bought a car on condition subsequent from Alemayehu and sold a television on condition precedent to Alemayehu. a) Who is the holder of the car before the condition is fulfilled? b) Who is the actual holder of the television before the condition is fulfilled? Page | 72 CHAPTER THREE PLURALITY OF DEBTORS OR CREDITORS Introduction The presentation of the general law of contracts was based up to now on the assumption that it was dealing with a given obligation, which had a single creditor and a single debtor. But of course, this presentation is made in the interest of simplification. In practice things may be much more complex. An important and frequent variation on the scheme of a single obligation binding one creditor and one debtor is where more than one party is involved in the performance of the obligation. For instance, several creditors and debtors may be involved. The study of this situation is the object of the present chapter. In our law, Chapter six of Title Twelve of the Civil Code deals with plurality of debtors or creditors. However, it is worth noting to show the different terminologies used in different legal systems in the common law, the French law, and our Civil Code there are different terms used in those systems. For reasons of consistency it will be better to use the term solidary obligation from the perspective of debtors, creditors, and nature of obligation itself. Thus, this chapter covers three units: solidary obligations in case of plurality of debtors, solidary obligations in case of plurality of creditors and obligations other than solidary obligations in case of plurality of debtors or creditors. Objectives After having completed the study of this unit, you will be able to:  Define joint and several liability or solidary obligations;  Explain the effect of joint and several liability among co-debtors;  Discuss the relationship of co-debtors with the creditor;  Discuss the relationship of co-debtors among themselves; Page | 75 The French concept of solidary obligation and the common law concept of joint and several obligations have a common feature, i.e., that each solidary debtor binds himself for the whole obligation with the result that performance by one debtor discharges the other debtors. In the French legal system, solidary obligations are divided into two forms: those which are contracted in favor of several creditors, active solidarity and those which are contracted by several debtors, passive solidarity. The starting point in the French codal provisions as to debts contracted solidarily is that the creditor of a solidary obligation has an advantage in that he may obtain payment from any solidary debtor. Although the debtors are obliged to perform the same object of the contract, they may be obliged in different ways; for example, one debtor may be bound purely and simply and another may be bound subject to a condition or a term. The creditor who has taken action against one of the solidary co-debtors is not barred from taking action against the others. Furthermore, a judicial demand against one of the solidary debtors interrupts prescription as to all co-debtors. The theory used by the French commentators and the jurisprudence to explain the rights and duties of solidary debtors is that there is either a fictions or real reciprocal mandate among the debtors. Furthermore, a co- debtor may not increase the burden of the debt upon the other co-debtors. In a suit by the creditor a solidary co-debtor may plead defenses which are common to all the co-debtors in addition to defenses which result from the nature of the obligation and his own personal defenses. However, the solidary co-debtors may not use those defenses which are personal to other co-debtors. Defenses which are common to all the co-debtors are payment, novation and prescription and various grounds of invalidation of contract that make the contract null and void. The personal exceptions such as duress, error or incapacity belong to one or several of the debtors but not to all of them. If a debtor is released by the creditor and the creditor fails to reserve the solidarity against the other co-debtors, all co-debtors are released and the debt is extinguished. The remission by a creditor in favor of a solidary co-debtor discharges the other debtors unless the creditor expressly reserves his rights against them. Solidary debtors inter se are liable only for their Page | 76 respective interests in the debt; and payment of the whole debt by one co-debtor renders the others liable for contribution to the paying co-debtor. There is a presumption that the obligation is divided into equal portions among the co-debtors, but this presumption is open to rebuttal by evidence of a prior agreement between the debtors. Therefore, the debtor who pays the creditor more than his portion of the debt may pursue his co-debtors for their respective shares of the excessive payment. If one of the co-debtors is insolvent his share is borne equally by the remaining co-debtors. 3.1.2 Treatment of solidary obligations in case of plurality of debtors under the Ethiopian Law In a solidary obligation in case of plurality of debtors, each debtor is considered in his relation with the creditor as debtor of the entire performance or each debtor is obliged as if he were the only debtor. In this regard, the principle is provided under Articles 1896 & 1897 of the Civil Code. These provisions illustrate the idea of solidary obligation among plurality of debtors. An obligation is said to be joint and several among the debtors when each debtor is considered in his relation with the creditor as debtor of the entire performance (as if he were the only debtor) or where both debtors are jointly liable for the whole debt. Each solidary debtor or both solidary debtors, in so far as the creditor or creditors are concerned, is/are the debtor (s) of the entire amount individually (severally) or jointly. Thus, each debtor is held liable until the obligation is fully discharged. The same debt may be required, be it divisible or indivisible, from only one of the co-debtors. The creditor has the discretion to select the most solvent debtor and ask everything from such debtor. Under our law, Article 1896 of the Civil Code lays down a fundamental rule regarding the situation where several debtors are concerned by the same debt. It reads, unless otherwise agreed or provided by law, co-debtors shall be jointly and severally liable. This implies that failing an express provision to the contrary, the very fact that there are two or more debtors makes them jointly and severally compelled to perform the obligation. Of course, joint and Page | 77 several liabilities arise from the law. One has to say that the presumption of joint obligation is by no means evident. The presumption in French law is exactly the reverse: where no express provision so states, a plurality of debtors does not make them joint debtors and the same goes for German law for divisible obligations. The foreign legislations decide to protect debtors first and foremost, because it is considered that in case of doubt a person does not have to be held beyond his share of the debt. On the contrary, the Ethiopian Civil Code is in favor of creditors. Where no express provision prohibits them from acting this, they may always claim that the debtors are joint debtors, and therefore ask for payment of the entire debt of one of them only. The Ethiopian solution is a choice probably dictated by the intention of seeing contracts effectively enforced, rather than putting creditors at the risk of insolvency in the many cases where no written contract is drafted. Another advantage is that the creditor does not have to divide his actions between the joint debtors: he will simply select the one most likely to be able to pay in full and lets him later take the risk of getting refunded from his co-debtors (Article 1908). It is almost a pedagogical approach, forcing upon the debtors the meaning of the enforceability of contracts. On the other hand, in an age where consumer protection expands more and more, such a presumption of joint liability may not be in line with current trends. Accordingly, a joint obligation is therefore on automatic by-product where a contract involves several debtors. But the law itself might decide to impose a joint obligation in various other cases; for instance in the case of the debts contracted by spouses, for persons jointly held to pay maintenance (Article 819), for the persons concerned by the cummulation of liabilities (Articles 2124, 2125, 2136 of the Civil Code), for persons involved in the same criminal action as instigator, principal or accomplice (Article 2155(2)), or persons required to make good the same damage (Article 2155 (3), or "obligation in solidum"), plurality of principals in the contract of agency (Article 2225). See also the following Articles: 458,510,2155,2195,2225 of the Civil Code and Articles 255, 296, 301, 308, 309, 328,342, 364,366, 780, 790, 825,868, 872 of the Commercial Code. Page | 80 C) On void and voidable contracts The third effect relates to void and voidable contracts. As to the nature of void and voidable contracts, the reader is advised to read Chapter One. From Article 1900 of the Civil Code, you can understand that there are defenses common to all co-debtors and defenses which are strictly personal. In this regard sub-Article one seems to refer to void contracts while the second sub Article relates to contracts which are voidable. Thus, where the contract is void, any of the co-debtors can raise this defense against the creditor(s). Accordingly, this defense is classified under common defense available to all. For instance, if the object of the contract is unlawful, immoral or the contract doesn't fulfill the prescribed formality requirement, any co-debtor can raise such defense. On the other hand, where the contract is voidable this may not be raised by all the co-debtors. It is only a debtor who has the right to invoke invalidation of such contract that may raise it as a defense. Accordingly, the defense is said to be a personal one. For instance, if the contract suffers from defect in consent or in capacity by one of the co-debtors, it is only this co-debtor, who is mistaken, deceived, compelled, or incapable, that can raise this defense. Among the common defenses that are available to all the co-debtors are payment and limitation of actions. Where there has been a total or partial payment or where the claim of the creditor is barred by limitation, each debtor may invoke this as a defense according to Article 1901 of the Civil Code. In this regard, in case of total payment and limitation of actions, the defense is to bar the total obligation. If payment is made by one, being the same debt, all are released in respect of the creditor. In case of particular payment by one of the co-debtors, however, the obligation will be reduced to the extent of the payment made by the co-debtor. D) On remission of debt The fourth effect relates to remission of debt by the creditor. In cases where there is solidarity of debtors, remission of debt may be absolute or relative in accordance with Article 1902 of Page | 81 the Civil Code. In this regard, if the creditor remits the debt to all co-debtors the obligation is extinguished and all co-debtors are released. However, if the creditor remits one of the co-debtors, there may arise a problem for applying such remission. Sub Article one of 1902 states that where the creditor remits the debt to one of the co-debtors, then all the co-debtors will benefit from such remission as they are released from the obligation to the extent of the remitted debt. Be that as it may, the creditor can make the remission to benefit only one of the co-debtors and reserve his right against the others. In this regard, the remission will benefit only that debtor and the creditor has a right to collect from the others less the amount he has remitted. But this will be the case where the creditor has expressly stated that the debt is remitted for the exclusive benefit of one debtor and that his right against the other debtors is reserved. This is clearly enshrined under Sub Article 3 of 1902. Thus, if the creditor does not expressly reserve his rights, then the remission may benefit all the co-debtors. There is, however, a discrepancy between the two versions of Sub-Article 3 of Article 1902. The English version implies that where the entire debt rests upon the debtor whose share has been remitted by the creditor, the other joint debtors are going to be released. It does not seem to refer to the share of the debt of the remitted debtor. On the other hand, the Amharic version clearly deals with the share in the debt of the debtor whose debt has been remitted. This means where the creditor has remitted for the exclusive advantage of one of the co-debtors, the other co-debtors remain responsible towards the creditor who is merely entitled to deduct from the common debt the portion owed by the one discharged. Thus, in this regard, the Amharic version seems preferable. In respect of joint obligations of co-debtors, Article 1902, which settles the question the remission of the debt granted to one co-debtor releases all the other co-debtors. This is the logical consequence that the debt granted to one co-debtor releases all the other co-debtors. This is the logical consequence of the presumption of "joint and several liabilities". But it is a rebuttable presumption. Page | 82 The opposite is true when the creditor specifies that the remission is for the exclusive advantage of one debtor only. The provision insists ("specifies") on the fact that such an exclusive advantage must be clearly stated by the creditor. In case of doubt, the court will therefore extend the benefit of the remission to all co-debtors. Where the remission is limited to one co-debtor, the others however, benefit from it (Article 1902, sub. 3) if the debt ultimately rests with the advantaged debtor. What is meant by such a provision? It means that they may only claim a reduction of their own share if it is clear that the remission was meant to reduce the global debt by the amount remitted. The following example will illustrate what has been just said. A, B and C are debtors of 900 birr in respect of P. Failing any contrary contractual or legal provision, they are deemed jointly liable, that is, each one may be required to pay 900 birr to P if he is the first to be asked. If he pays, he will then ask the other two debtors each for one third of the debt (300 birr) pursuant to Article 1907 and 1908, sub. 1.Suppose P decides to remit B's debt. If P doesn't state clearly that such remission is in the exclusive interest of B, then one must consider that the entire debt of 900 Birr is remitted and that A and C are therefore released (Article 1902 sub. 1). P may state that the remission is in the sole interest of B. If he does not say anything else, the other debtors remain held for the total amount. In the previous example A or C may be asked to pay the full 900 birr, and may only require from the other half of what he paid (450 Birr). We have an illustration of the rule also stated under Article 1908 sub. 2: the joint co-debtors incur the risk of a non-paying co-debtor. Finally, if it is clear that the debt remitted rests with B, A and C can claim a proportional reduction of their obligations. Here, the amount B can claim from A or C is equal to 900 - 300 (B's share of the debt) = 600 Birr. Conversely, the debtor (A or C) who has paid has an action against the other for half that amount (300 Birr). E) On novation Fifthly, in case where the creditor agrees with one of the co-debtors to substitute a new obligation for the original one, then provisions of Article 1902 will mutatis mutandis apply. Page | 85 The defenses open to joint debtors must be distributed according to their scope in the four categories set out above. The first category is that of the defenses common to all, which may be exercised by any of them. In fact, Article 1906 (2) of the Civil Code states the duty for a debtor to raise all objections common to all debtors. Certain objections are personal of one of the joint debtors, but by a mechanical effect they may be extended to all. The third category is that of purely personal objections. The last category is where the debt rests finally with another debtor, even if the joint debtors were called at one stage to contribute. 3.1.5. The Relation of the co-debtors inter se The relation of the co-debtors as between themselves or among themselves is regulated under Article 1906 through 1909 of the Civil Code. These will be discussed in the following manner. Firstly, where several debtors are bound jointly and severally for the performance of one and the same obligation, they are duty bound to promote the betterment of the condition of all of them. Accordingly, a debtor is required to abstain from doing anything which might aggravate the situation of the other co-debtors. This principle is incorporated under Article 1906 of the Civil Code. Article 1906(1) imposes upon each joint debtor the prohibition to aggravate by his behavior the situation of the other debtors. You may, for instance, consider a situation where the claim of the creditor is barred by limitation but one of the co-debtors fails to raise this defense. This failure implies an increase in the liability of the other co-debtors. Apart from this, Sub Article 2 provides that where the debtor fails to raise a defense that is available to all co-debtors, then such a debtor will be liable to the other co-debtors. Such is the case where one of the co-debtors fails to raise limitation as defense. Secondly, the co-debtors will share the common debt after payment. The fact that each debtor is held liable for the performance of the whole obligation in his relation with the creditor does not prevent the common debt from being divided. After the performance of the obligation, the Page | 86 obligation becomes divisible among the co-debtors. This is because every one of them is presumably acting for his own benefit and thus must have a share in the debt despite the fact that the undertaking by the co-debtors is considered as involving a common debt in their relation to the creditor. This being said, the principle, once the creditor has been paid, is that the joint liability ceases and that the principle is that of the division of the debt between the debtors, on an equal basis, unless otherwise provided (Article 1907 of the Civil Code). This provision provides the manner of the division of the debt among the co-debtors. This provision takes a presumption of equality in the share of the debt among the co-debtors. This presumption may, however, be rebutted where there is either a contrary agreement among the parties or a contrary provision of the law. If, for instance, the co-debtors have a separate agreement which states that the shares of each debtor in the total debt are not equal, the contribution is to be made in accordance with their agreement. Thirdly, in so far as each debtor is liable to contribute to the extent of his part in the common debt, a debtor who has paid in excess of his share will be entitled to a right of recourse against the remaining co-debtors for the excess amount as per-Article 1908. Thus, the operation of division is made along the lines set out by Article 1908 of the Civil Code. The debtor who paid more than his share may be refunded the surplus by each other debtor in proportion of their share. Equality is not necessarily absolute if the contractual provisions stated different shares to rest on the heads of the debtors. Where one of the debtors is insolvent, the risk is assumed by the others who pay his share, again in proportion of their own (Article 1908(2)). Sub Article 1 of Article 1908 provides that the debtor who has paid in excess of his share may claim the amount paid in excess of his share from the other co-debtors in proportion to their shares. Once the obligation towards the creditor has been fully discharged, the solidary nature of the debt comes to an end. The paying debtor may only claim the excess amount he paid from the Page | 87 co-debtors in proportion to their shares in the common debt as there is no joint and several obligations among the co-debtors. However, where one of the debtor's shares cannot be recovered, Sub Article (2) provides that such unrecovered amount is to be repaid by the other co-debtors in proportion to their share. This may include insolvency of the debtor. Thus, where one of the co-debtors becomes insolvent, such risk of insolvency is borne by the other co-debtors in proportion to their shares in the common debt. A co-debtor with greater share in the common debt will assume the greater risk and the co-debtor with a smaller share in the common debt will assume smaller risk. Lastly, a debtor who has paid in excess of his share will be entitled to a right of recourse against the other co-debtors who have not yet paid their shares pursuant to Article 1909 of the Civil Code. The paying debtor by virtue of this provision is entitled to claim contribution from the other co-debtors. Such action is what is called the legal right of subrogation as a result of which such paying debtor will be placed in the position of the creditor to the extent of the amount paid by him to the latter. In such cases, the creditor is legally required to hand over any document and make available all information to the paying debtor to enable the latter to claim from his co- debtors. If the creditor fails to discharge this legal duty, he is subject to the payment of damage arising from his failure. Accordingly, the debtor who has paid may exercise his action to the extent of the amount paid. The creditor has a duty of collaboration with the debtor who paid him, and must specifically hand all the documents and make all the formalities necessary for the refund. This duty of collaboration of creditor is sanctioned by Article 1909(3): he will be liable for the damage caused by him to the debtor who has paid when such substitution is impossible because of his own behavior. Dear students, how do you see the right of substitution and subrogation? Page | 90 Thus, the situation of joint creditors can be analyzed along the same lines as that of the joint debtors, i.e. in terms of unity of the debt. The unity of the debt is considered under Articles 1911 and 1912. Each creditor may require payment of the whole debt, the payment to one amounts to payment to all, and any interruption of limitation benefits all. Translated on the side of the debtor, it allows the latter to pay the creditor of his choice, at least until proceedings have been instituted by another, who then takes precedence. The plurality of links can be seen in Articles 1913 and 1914 of the Civil Code, where a remission of debt or a novation granted by one creditor only affects this creditor's share. In the same sense, in the event of a set-off, Article 1915 of the Civil Code states that the debtor may only oppose such a defense to the extent of the creditor's ultimate share in the claim. Although each creditor is considered as a representative of the other, solidary creditors do not have the right to dispose of the entire credit individually. In reality, the credit belongs to each creditor only for his part. Each of the co-creditors may do whatever may be useful to the others, but not anything which may be prejudicial to the latter. Accordingly, there is a limitation on the power of each creditor to represent the other joint debtors. These limitations are enshrined under Articles 1913 through 1915 of the Civil Code. Firstly, no one of the joint creditors can remit the entire debt without the consent of the others. Where remission of debt is made by one joint creditor, the credit remains intact with regard to the other creditors. The remission will be effective only as to the part of the joint creditor who effected the remission. The remission thus made only releases the debtor in respect of such remitting creditor. This principle is incorporated under Article 1913. For example: Cl, C2, and C3 are joint creditors of the sum of 900 Birr in respect of D. If C2 remits the debt to D, D sees his debt drop by the share of C2 (300 birr) and he stands to pay 600 Birr either for C1 or C2 Page | 91 Thus, what is the consequence of a remission of debt on guarantors? The suretyship granted to the creditor is given in respect of a precise debt (Articles 1920, 1928 and 1946 (acontrario) of the Civil Code, the suretyship is an accessory to the principal contractual relation. Where the creditor remits the principal debt, the suretyship has no reason to endure and the guarantor is released at the same time (Articles 1926 of the Civil Code). On the other hand, the creditor may release the guarantor; this does not affect the existence of the principal debt. In the event of a plurality of guarantors, the release of the suretyship granted by the creditor should logically follow the same lines as what has been said for the case of several debtors, that is, it varies according to whether the guarantors are jointly held or are simple guarantors. Secondly, similar to remission, a joint creditor does not have the mandate to enter into a novation agreement with regard to the entire credit. Any novation agreement made by a joint creditor will have effect only with respect to the share of that creditor as per Article 1914 of the Civil Code. However, where the other joint creditors have consented to the novation, it may have effect as regards such consenting creditors. Thirdly, in case where the debtor becomes creditor of one of the co-creditors, the debtor may invoke set off against the other co-creditors only to the extent of the share of such creditor pursuant to Article 1915 of the Civil Code. Lastly, where one of the co-creditors has collected the entire amount of the debt from the debtor(s), there arises an obligation on such creditor to render an account to his co-creditors. He is held liable to the others for the share in the obligation corresponding to them. A joint creditor who is paid more than his share must then distribute the surplus between his co-creditors, in proportion of their respective shares. With respect to such distribution between the co-creditors of the debt paid, Article 1916 of the Civil Code provides the mode of distribution. The principle incorporated under Article 1916 is that of equality of shares in the distribution of the payment made by the debtor. This principle may not work where a contrary provision is there in the agreement of the parties, i.e., the co-creditors. Here again, one must insist on the fact that a joint Page | 92 creditorship does not necessarily mean that each creditor is ultimately entitled to an equal share. The judge will have to study the contract. 3.3 Non Joint Obligations There may be situations where there is plurality of debtors and/or creditors regarding an obligation that is not joint and several one. The obligation may be either indivisible or divisible. Indivisible obligation is treated under Article 1917 of the Civil Code and divisible obligation is treated under Articles 1918 and 1919 of the Civil Code. 3.3.1 Indivisible obligations The Ethiopian Civil Code has no where defined indivisible obligations. Accordingly, it would be better to consult literatures and other legal systems about indivisible obligations. Indivisibility is generally a characteristic of the object of the obligation. For instance, a car is indivisible if this is the object of the obligation. The same applies to a given obligation to perform a service. If there exists a plurality of debtors, the situation is de facto very close to a joint obligation. Hence the rule stated by Article 1917 is the applicability by analogy of the rules governing joint obligations. In the French law, an obligation is indivisible where corporal or intellectual division of its object is legally or physically impossible. Thus, where the obligation is indivisible, the debtor cannot execute the obligation in part. In such cases, it is impossible for the debtor to perform his obligation in part, but must be performed altogether. An indivisible obligation is either absolute or relative. An obligation is absolutely indivisible where the object of the obligation is indivisible under whatever aspect it is envisaged, in such a way that it can never be due without the obligation being indivisible. For instance, in a contract of sale of a horse, obligation of delivery of a horse is absolutely indivisible.