Contracts allied to sale Under Ethiopian Law of Sales
2.6. Contracts allied to sale (various forms of contract)
There are contracts which are similar to sales contract with certain unique applications. These contracts have certain unique application in their formation, in transfer of risk, obligation of the parties, and other associated issues.
Having discussed the various remedies of non-performance therefore, various forms of sales and contracts allied to sale specifically sale of cattle and other living things, Sale by sample, Sale on trial, sale by installment, sale with ownership reserved, sale with right of redemption, sale with obligation to forward, sale by auction, under various forms of sales and barter contract, hiring sale and contract of supply under the contracts allied to sales will be discussed.
Generally, corporeal chattels are the subject matter of various forms of sales and contracts allied to sales. Accordingly, when the special provisions dealing with the special corporeal chattels are silent, provisions of sales contract and general contract can be applied as discussed in scope and function of law of sales. Their similarity and difference with contract of sale and among themselves will be discussed in dealing with each special contract. After studying this section students are expected to:
- Differentiate between the contract of sale and various forms of sales and contracts allied to sales
- Differentiate each various forms of sale and contracts allied to sales
- State the peculiar nature of the various forms of sale contracts allied to sales
2.6.2. Various contracts
As indicated above, various forms of sales and contracts allied to sale specifically sale of cattle and other living things, Sale by sample, Sale on trial, sale by installment, sale with ownership reserved, sale with right of redemption, sale with obligation to forward, sale by auction, under various forms of sales and barter contract, hiring sale and contract of supply under the contracts allied to sales will be discussed in the following sections.
A) Sale of cattle and other living animals
Sale of cattle and other living things is one the various forms of sales. This special form of sales has certain peculiar characteristics of which the obligation of the seller is one. The seller has the obligation to warranty against contagious diseases and defect. On making delivery, the seller shall guarantee that the animal sold by him does not suffer from any of the diseases which are listed in Article 2369. And any contractual stipulation contrary to this is of no effect. But the presence of such contractual obligation does not affect the very existence of the contract although the obligation to warrant is characterizing obligation of the contract.
Giving no effect to contrary stipulations is against the freedom of contract because the parties do not have the right to agree as they like. This limitation on the freedom of contract of the parties seems to be justified on the protection of the party against information asymmetry. However, this limitation seems to overlook the possibility of agreement of parties with full knowledge. For example someone might be willing to buy an animal with such disease for research.
This is one difference between sale of cattle and other living things on one the hand and contract of sale on the other. In contract of sale leave alone express exclusion of warranty, the knowledge of the buyer about the defect denies the buyer protection.
As far as warranty against defects is concerned, warranty shall be due by the seller where the animal sold is affected by a defect such that it is not fit for the purpose to which it is destined by its nature or under contract. The parties may by express provision in the contract exclude with regard to a given defect the warranty is due.
Likewise, the parties may extend the warranty and provide that the seller shall warrant that the animal possesses a given quality. In this case the parties are free to agree in the way they like and this shows that the obligation to warrant against defect is not characterizing obligation.
Where the obligation of the parties is not discharged the contract can be cancelled pursuant to Article 2373. Where the animal suffers from a contagious disease or is affected by a defect for which warranty is due under the law or the contract, the buyer may require that the sale be cancelled.
When the contract is cancelled there are certain circumstances where compensation is ordered pursuant to Article 2375. The seller shall make good the damage caused to the buyer where: (a) the seller has expressly guaranteed that the animal was no affected by the disease or defect by reason of which the sale is cancelled; or (b) the seller is shown to have known, at the time of delivery, of the disease or defect by reason of which the sale is cancelled.
Such protection is also extended when the animal is lost as of Article 2374. Where the animal sold dies in consequence of a disease or defect for which warranty is due or of a fortuitous even caused by such defect, the loss shall be borne by the seller who shall refund the price he received.
It is not only the buyer who is protected as the seller is also protected in sale of cattle or other living things. Article 2326 shows that the buyer shall lose his rights against the seller where he fails to cause the disease or defect to be ascertained by experts and to inform the seller of such disease or defect within the time fixed in writing by the parties. Where no time has been fixed, the buyer shall lose his rights where he fails to cause the disease or defect to be ascertained by experts and to inform the seller of such disease or defect within thirty days from the animal having been delivered.
B) Sale by sample
In addition to sale of cattle and other living things sale by sample is also another form of contract of sale. Sale by sample refers to a contract where an example of the thing to be delivered is given to the buyer.
In a sale by sample or pattern, the qualities of the thing shall conform to those of the sample or pattern. Where there is discrepancy between the sample and the manner in which the thing is described in the contract, the sample prevails. And if there are differences but no discrepancy, the thing shall combine the qualities of the sample and those of the description.
The basic difference between sale by sample and sale contract is that in sale by sample there is warranty indicating that the example given is the same as the thing to be delivered. The sample may not necessarily be the subject of sale. But the thing given as a specimen or sample shall be in conformity with the subject of sell.
Accordingly, the party to whom the sample was entrusted shall have to prove that the sample exhibited is identical to the sample received. There is no sale by sample or pattern where the seller proves that the sample or pattern was only presented to the buyer by way of information without any undertaking as to conformity.
C) Sale on trial
In sale on trial acceptance is required to be within a certain period of time or a reasonable period. Here, it can be inferred that sale on trial is one indication of an offer with time limit for acceptance. Hence, Article 2380 connotes that where the sale has been made upon trial, the buyer shall, within the period fixed in the contract, declare whether he accepts or refuses the thing. The seller is duty bound by the contract until the expiry of the fixed period of time pursuant to Article 1690 of the civil code.
If no period is fixed in the contract, the seller may give the buyer a reasonable period of time to decide. It is questionable if the buyer can have a remedy for his reliance when the seller reneged his promise and entered into another contract. Such problem can be solved by applying general contract provision article 1691 which dictates that where acceptance is late in an offer without time limit, the offerer shall forth with inform the offeree (buyer) his intention not to be bound by his offer. This might be again result in a controversy as to what time is reasonable time.
Within the aforementioned time the buyer may show his acceptance either by keeping silent or by implication. Where the buyer fails to inform the seller of his decision within the above period, the sale shall be deemed to be concluded where the thing has been delivered to the buyer so that he may try it. This mode of acceptance is contrary to the general contract provisions.
? How do you think should the contradiction between the general contract and sale on trial be resolved?
According to the general canon of interpretation and Article 1676 (2) of the Civil Code special provisions shall prevail over general provisions. The provisions on sale on trial shall be applied as general contract and sales contract provisions shall not affect special provisions of sale on trial. The thing shall be deemed to be refused in the contrary case.
In addition to acceptance by silence acceptance can also be made by implication as provided under article 2382. The sale is deemed to be concluded where the buyer pays without reservation all or part of the price or dispose of the thing otherwise than is necessary to try it. Acceptance by implication is, for stronger reason, more substantial than acceptance by silence.
As far as risk transfer is concerned, Article 2383 shows that risks shall be borne by the seller notwithstanding that the thing has been delivered to the buyer, as long as the buyer has not accepted it. This is in line with the principle which dictates that risk perishes to the owner contrary to risk follows hands.
D) Sale by installments
In sale by installments the seller has certain options as stated under Article 2384. According to this provision, where the thing has been sold and delivered on the condition that the price will be paid by installments and the buyer is in arrears with one of the part payments, the seller may proceed to recover the unpaid installments or, where such right has been expressly reserved to him, declare the cancellation of the contract.
Art.2385 shows that where the contract is cancelled, the seller and the buyer shall return the payments, which they have made to each other. The seller may, however, claim a fair rent and an indemnity for the wear and tear of the thing. Any stipulation imposing more onerous obligations on the buyer shall be of no effect.
Exigibility of balance is limitation on the seller to exercise his rights. Article 2386 dictates in connoting the limitation that where the exigibility of the balance of the claim has been stipulated in the case of default of payment of an installment, the seller may not avail himself of this stipulation unless the buyer is in arrears for two consecutive payments representing together not less than one tenth of the price of the sale. Any stipulation imposing more onerous obligations on the buyer shall be of no effect. Although the parties may stipulate such obligation, it will be void without affecting the very existence of the contract.
E) Sale with ownership reserved
Sale with ownership reserved is a contract where the seller delivers the thing to the buyer without transferring ownership unlike the contract of sale where ownership is required to be transferred. In a contract with ownership reserved, the rights of third parties might be negatively affected and result in negative externality.
For example Degef might buy a car from Yidnekachew who has got it because of sale with ownership reserved from Abebe. If the real right of the Abebe is given priority, the right of third party (Degef) who has bought it might be affected.
To protect third party, Article 2387 has been provided connoting that a provision whereby the seller reserves to himself, until payment of the price, the ownership of a thing the possession of which has been transferred to the buyer shall not affect third parties unless it has been entered in a public register kept for this purpose at the place where the buyer resides. Where the third party who has acquired the thing is bankrupt, such provision shall not affect his creditors except on the conditions laid down in the commercial code. Whether the third party for whom protection is extended is required to be in good faith or not has not been provided.
And protecting a party in bad faith seems to be absurd. If for example the third party has bought the car knowing that it belongs not to the seller but to a third party, he shall not be protected although he is a third party.
The way risk is transferred is also an important issue worth discussion. Article2388 dictates that the risks are born by the buyer from the time the thing is delivered to him. Although the seller is still the owner, risk is transferred to the buyer upon delivery or risk follows hands. This is in lin with the principle that delivery transfers risk and against the principle that dictates risk perishes to the owner.
Article 2389 dictates cancellation of sale with ownership reserved and its consequences. Where the sale is cancelled, the seller shall return to the buyer all partial payments, which he had received. He may however claim a fair rent and an indemnity for the wear and tear of the thing. Any stipulation imposing more onerous obligations on the buyer shall be of no effect.
F) Sale with right of redemption
Sale with the right of redemption is a contract where the buyer has the right to re-take the subject of sale unlike the contract of sale. The seller may reserve to himself the right to redeem within a given period of time the thing which he sold to the buyer pursuant to Article 2390. In sales contract, however, the seller may have the chance to retake the thing sold provided that the contract is valid. Such contract might have a negative impact on certainty and security of transaction as the buyer might lack certainty on the thing he has bought.
Article 2391 has been put to attenuate such negative impact by providing limitation on the time of redemption. The period for exercising the right of redemption may not exceed two years. It shall be two years where a shorter period has not been fixed. The contracting parties are free to shorten the period of limitation of redemption by agreement unlike period of limitation in general contract provisions pursuant to Article 1855.
The buyer who buys a thing with the right of redemption has certain limitation to protect the right of the seller. The buyer may, according to Article 2392, not assign the thing to which the right of redemption extends. But this will not affect third parties unless the clause providing for redemption has been entered in a public register kept for this purpose at the place where the buyer resides.
The seller does not have the freedom to take what he has sold without limitation as it might have negative impact on the buyer. Article 2393 has extended protection to the buyer by imposing obligation on the seller. The seller who exercises his right of redemption shall refund the buyer the price, which he had received, and the expenses of the contract of sale. Unless otherwise agreed, the provisions of the chapter of this code relates that to unlawful enrichment shall apply as regards the expenses incurred by the buyer on the thing.
G) Sale with the obligation to forward the thing
Sale with obligation to forward wccurs when the seller is duty bound to convey the thing to the buyer. Article 2394 which deal with care of transport, sates that where the seller is bound by the contract to forward the thing, he shall make, on the usual conditions and by the usual means, the contracts of carriage necessary for the thing to be actually forwarded to the place fixed in the contract of sale.
Where the contract of sale implies the carrying of the thing, the delivery shall, unless otherwise agreed, be effected by the handing over of the thing to the carrier as of Article 2395. This mode of delivery is actual handing over of the thing. Where the seller uses his own means of transport or means of transport hired by him for the purpose of effecting part of the carrying, delivery shall be effected by the handing over of the thing to the carrier with whom the contract of carriage is made on behalf of the seller. Where the thing is to be carried by successive carriers and the seller is bound by the contract of sale to enter into one or more contracts of carriage covering the whole transport, delivery shall be effected by the handing over of the thing to the first carrier.
Article 2396 which deal with thing not intended for the execution of the contract indicates that where the thing handed over to the carrier is manifestly not intended for the execution of the contract, by reason of an address written thereon or otherwise, the duty to make delivery shall not be deemed to have been carried out unless the seller gave notice of the transport to the buyer and sent him, where appropriate, a document describing the thing.
As far as delivery in carriage by water is concerned Article 2397 states that where the carrier to whom the thing is handed over is required to carry the thing by water, delivery shall be effected by the thing being put on the board or by the ship according to the terms of the contract.
The seller may postpone the forwarding of the thing until he is paid, where the contract of carriage does not give him the right to dispose of the thing under voyage. But the seller cannot do so, where it has been agreed that delivery would take place at the place of arrival or the price is to be paid after delivery. Where the seller has forwarded the thing because he had the right to dispose thereof after the beginning of the voyage, he may, until the price is paid, object to the thing being handed over to the buyer at the place of destination.
Where a bill of lading or other document has been issued which permits to obtain the delivery of the thing or the possession of which is necessary to be able to dispose of the thing, the payment of the price may only be demanded against transfer of the document provided by the contract or by custom. In such case, the buyer may not refuse to pay the price on the ground that he was not able to examine the thing. The obligation to transfer the documents shall be deemed to be an essential provision of the contract where the document is a bill of lading or nay other document which permits to obtain the delivery of the thing or the possession of which is necessary to be able to dispose of the thing.
Where, after having forwarded the thing, the seller comes to know that the buyer has been declared insolvent, he may object to the thing being delivered to the buyer notwithstanding that the buyer is already in possession of the bill of lading or any other documents which permits to obtain the delivery of the thing. The seller may not object to the delivery where it is required by a third party regularly in possession of the bill of lading or the above mentioned document. In such case, the seller may not object to the delivery unless the bill of lading or other document contains reservation regarding the effect of its transmission or he can show that the holder, in acquiring the bill of lading or other documents, knowingly acted to the detriment of the seller.
Where the thing has been forwarded to the buyer and placed at his disposal at the place of destination, the buyer shall, if he intends to refuse the thing, take possession thereof on behalf of the seller where he can do so without payment of the price and without inconvenience or considerable expense. But this is not the case where the seller is present at the place of destination or there exists at such place a person qualified to receive the thing.
Regardign examination of the thing: where a thing is forwarded, the buyer shall examine it at the place of destination. Where the thing is re-dispatched by the buyer without transshipment and where the seller, at the time of the making of the contract, knew or should have known of the possibility of re-dispatching, the examination shall be postponed until the thing arrives at its new destination.
H) Sale by auction
Sale by auction has certain peculiar features one of which is its formation. As far as the formation of contract in the case of sale by auction is concerned, the contract of sale shall be concluded by the auction, which the seller or the auctioneer makes of the thing. The person who conducts the auction shall be deemed to be entitled to knock down the thing to the highest bidder, where the seller has expressed no contrary stipulation. The auctioneer does not have the right to refuse for the highest bid.
Sometimes it is questionable if there is last bid before the knocking down of the thing. A clear clarification has been put under the obligations of bidder in Article 2404 which indicates that the bidder shall be bound by his offer on the terms of the conditions of sale. Unless otherwise provided, he shall be released where a higher bid is made or his offer is not accepted immediately after the usual calls.
For example an auctioneer who is conducting an auction may not refuse to accept the highest bid from the other bidders although the auctioneer believes that the proposed price is much less than what he expected.
The obligation to pay is required to be in cash pursuant to Article 2405. Accordingly, unless otherwise provided in the conditions of sale, the bidder shall be bound to pay cash. The seller, who is not paid cash or according to the conditions of sale, may unilaterally cancel the contract forthwith,
Obligation of warranty due by the seller has been imposed under Article 2406 in that in a public and voluntarily sale by auction, the seller shall give the same warranty as in ordinary sales. In compulsory auctions, the seller shall not give warranty except in the case of fraud on his part.
Article 2407 has also provided obligation of warranty due by the disdainer. Accordingly, he at whose request the auction takes place shall warrant the conformity of the thing with the description given of it in the conditions of sales. He shall also be liable for any fraud he may commit.
I) Barter contract
Barter is one of the contracts allied to sale. Barter is a contract where a thing is exchanged for a thing. Certain scholars do not consider it is a contract for it leaves no obligation to be discharged.
Be that as it may it has been treated as a contract under Ethiopian laws. It differs from contract of sale in some respect. One of the differences is that there is no price to be paid in consideration of a thing to be delivered. One of the basic difference concerns their subject matter in that price is subject matter of law of sales but not a subject matter of barter contract.
Each of the exchangers shall, as regards the things subject to the exchange, have the same rights and obligations as a seller. The exchanger who is bound by the barter contract to pay a balance shall, as regards the payment of such balance, have the same obligations as a buyer. This is one way by which the general contract and sales contract provisions can be applied.
The other peculiarity is sharing of expense. Unless otherwise agreed, the exchangers shall share equally in the expenses of the barter contract since there is no buyer and seller in contract of barter. The provisions applicable to contracts of sale shall for the remainder apply to barter contracts. In addition to law of sales general contract provisions are also applicable to barter contract if they are relevant in a way they do not contradict with law of contract of sale and barter provisions.
J) Transfer of rights other than ownership
In addition to barter transfer of rights other than ownership is also among the contracts allied to sales. This is transfer of rights without the right to dispose the thing. The bare ownership is within the owner. Transfer of rights other than ownership includes transfer of usufruct and incorporeal rights. One of the basic differences with contract of sale is lack of obligation to transfer ownership.
i. Transfer of usufruct: – Transfer of usufruct is transfer of the provisions applicable to contracts of sale apply where a person transfers for consideration the usufruct of a thing. The obligation of the seller to transfer ownership of the thing is in such case replaced by the obligation to transfer the usufruct of such thing.
ii. Transfer of incorporeal rights: – The provisions applicable to contracts of sale shall, as far as possible and without prejudice to the provisions of special laws, apply where a person transfers for consideration an incorporeal right. Copy rights, business as it constitutes mainly good will can be under this provision. The transfer of choices in action is subject to the general provisions of the law of contract. It is, accordingly, questionable if transfer of actionable rights is under this provision.
K) Hiring sale
Regardingsale, as provided under Article 2412, the provisions applicable to contracts of sale apply where the parties have described their contract as one of hiring a thing, if it has been provided that the tenant of the thing will become the owner thereof upon payment of a given number of installments. However the following points should be given prior consideration.
The risks are borne by the tenant from the time when the thing has been delivered to him. Here the mode of delivery does not necessarily mean actual handing over. What is required to be taken into consideration is only delivery. However, it must be born in mind that ownership is not transferred accordingly the principle of transfer of risk is risk follows hands.
On termination of contract Article 2414 connotes that the tenant may at any time terminate the contract by returning the thing to the lessor. But sale contract is not subjected to termination upon the choice of one party.
As far as cancellation of the contract is concerned the general contract provisions can be applied. Especially Article 2415 connotes that where the contract is cancelled, the lessor shall return to the tenant the rents, which he has collected. He may only claim a fair rent and an indemnity for the wear and tear of the thing. Any provision imposing more onerous obligations on the tenant is of no effect. This is without affecting the formation of the contract.
L) Contract of supplies
The definition of contract of supply has been provided under Article 2416 as “A contract of supplies is a contract whereby a party undertakes for a price to make in favor of the other party periodical or continuous deliveries of things”.
Article 2417 shows lack of sufficient definition about the quantity to be delivered does not affect the contract in its formation. Where the quantity to be supplied has not been fixed, the supplier shall supply such quantity as corresponds to the normal needs of his contracting party, having regard to the time when the contract was made. If the parties have only fixed a maximum and a minimum limit for the whole of supplies or for each delivery, the person with whom the supplier contracted may fix, within these limits, the quantity to be supplied to him. If the quantity is to be fixed according to his needs, the person with whom the supplier contracted shall take all he needs, notwithstanding that this quantity exceeds the minimum fixed in the contract.
Lack of sufficient definition as to the price does not also affect the formation of the contract. Article 2418 states that where supplies are to be made periodically, the price for each delivery is, failing an express provision in the contract, fixed in accordance with the provisions of the law governing ordinary sale.
Article 2419 provides a gap-filling rule concerning time of payment. Accordingly, where supplies are to be made periodically, the price is due at the time of each delivery. Where supplies are to be continuous, the price is due on the usual maturity dates.
Article 2420 states that the time fixed for the various performances is considered to have been fixed in the interest of both parties. If the party entitled to the supplies is allowed to fix the time when each performance shall be made, he should inform the supplier of such time by giving him a reasonable notice.
If one of the parties fails to carry out his duties regarding a given performance, the contract may be cancelled where non-performance is of importance and capable of destroying the confidence in the regularity of the performance of future obligations. The supplier may only cancel the contract or suspend its performance after having given reasonable notice to his contracting party. Any provision to the contrary shall be of no effect pursuant to Article 2421.
Concerning preference clause Article 2422 and 2423 goes on to say, that a provision whereby a person undertakes to get supplies in preference from a given supplier, should he need certain kinds of goods, shall not be effective for more than three years. It shall be reduced to three years where it has been made for a longer period. A person who entered in such kind of undertakings should inform the supplier of the terms offered to him by third parties. In such cases, the supplier should, under pain of loss of right, declare within the time fixed in the contract or within a reasonable time whether he intends to avail himself of the preference clause.
When there is exclusive clause binding the client, Article 2424 fills the possible gap by providing that if a provision has been made in a contract to the effect that a person shall supply himself exclusively with certain things from a given supplier, such person may not receive from third parties supplies of the things of the nature provided in the contract. Unless otherwise agreed, such person may not himself manufacture or produce things of the nature provided in the contract.
When there is an exclusive clause binding the supplier Article 2425 also takes the gap filling role and shows that if it has been agreed that the supplier should supply his products to a given person only, the supplier may not, in the area provided in the contract and during the currency of the contract, directly or indirectly supply third parties with goods of the nature provided in the contract. If the contracting party has undertaken to develop, in the area provided in the contract, the sale of the things, which have been reserved to him, he shall be liable where he fails to carry out this obligation, even if he sold the minimum quantity provided in the contract.
As far as termination of contract is concerned, if the duration of the contract of supplies has not been fixed in the contract, each party may terminate the contract by giving notice as provided in the contract or, where not provided, reasonable notice. The reasonableness of the time shall be assessed considering the position of the parties in supplying it to others and in obtaining the thing to be supplied from others.