Ethiopian Legal Brief

Definition of contract of sales in Ethiopia

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Definition of contract of sales in Ethiopia

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2.1.2. Definition of contract of sales in Ethiopia

Sale is one way by which rights are assigned under the Civil Code of Ethiopia. There are different ways by which rights are assigned in addition to contract of sale. Sale has been defined under Article 2266 of the civil code as ‘a contract whereby one of the parties, the seller, undertakes to deliver a thing and transfer its ownership to another party, the buyer, in consideration of a price expressed in money which the buyer undertakes to pay him’.

 

The essential characteristic of sale lies in the obligation of the seller to deliver and transfer ownership and in the obligation of the buyer to pay a price. Other obligations of the parties are consequential in the sense that they are implied into the contract (by law), unless clearly excluded by the agreement of the parties.

 

Contractual obligations are different from one another both in their nature and effect. For example, in the English law of contracts, obligations are divided into two: conditions and warranties. Conditions are essential terms of the contract and hence determine the nature of the contract. On the other hand, warranties are not essential terms and do not determine the nature of the contract. Moreover, in English law, it is only breach (non performance) of an obligation, which can be characterized as condition that results in the cancellation of the contract. If one of the parties fails to perform one of his obligations and the obligation is a warranty, then the remedy of cancellation is not available as a remedy to the other party.

 

Ethiopian law is apparently similar to English law of contracts, at least in terms of the above distinction. This is because, under Ethiopian law, it is only fundamental non-performance that results in the cancellation of the contract. Non-performance is fundamental only when it affects the essence (essential terms) of the contract. Non-performance related to a minor obligation of the debtor is remedied by specific performance or damages but not by cancellation.  From this one can learn that contractual obligations are different from one another both in their nature and effect. Similarly it is only certain obligations that determine the nature of a given contract. Others may be incidental or non-determinative.

 

The definitional Article which provides two obligations of the seller and one obligation of the buyer is not intended to deal with all the obligations. The buyer and the seller have additional obligations. For example, the seller, according to Article 2273, has the obligation to warrant against partial or total dispossession and against defects and non-conformities. A question as to why these obligations are not mentioned in Article 2266 may be raised.

 

This is because the two sets of obligations are different in their nature and effect. The first set of obligations of the seller stated in Article 2266, determine the nature of the contract. That is to mean, in any contract, if the obligation of one party is to deliver a thing and transfer ownership and the obligation of the other is to pay a price, expressed in terms of money, that contract is considered as a contract of sale. That means these obligations are preconditions for the existence of contract of sale.

 

On the other hand, the other set of obligations stated in Article 2273 are not essential obligations. The parties can for example expressly agree that the seller does not have the obligation to make such warranties. The contract, however, does not change its nature. It is still a contract of sale. However, unless expressly and completely excluded by the parties, the seller has the obligation to warrant against partial or total dispossession and against defects and non-conformities. Hence, we can call these obligations as incidental, or non-essential or implied or consequential obligations. In a contract of sale, the obligations that are stated under Article 2273 are known as incidents of sale. Whereas those stated in Article 2266 are essential; in their absence, the contract could be anything but not sale. There are other essential elements of the definition of sales contract. Consider the following.

 

2.1.2.1. It is Contract

Among the elements of the definition of sale its being contract is one. Contract of sale is a special kind of contract. The parties should comply with the essential conditions for the validity of contracts in general. Thus the parties must be capable, that is they should not be minor, insane and infirm, judicially interdicted person, or legally interdicted person.

 

There must be an offer and acceptance for the formation of sales contract. The consent of the parties, which is expressed through offer and acceptance, should also be free from defect. Mistake, fraud, duress, unconscionable nature of the contract undue influence renders contract of sale invalid. The obligations of both the buyer and the seller must be defined, lawful and possible. If the parties to the contract of sale fail to comply with these requirements the contract would be invalid.

 

The fact that contract of sale is a contract does not, however, mean that it does not have peculiar natures to which the coverage of general contract is not enough. Contract of sale has certain peculiar characteristics different from the definition of general contract. Such peculiarity can be inferred from the definition. Accordingly, one of its peculiarities is that it must be concluded between two parties, which are called the seller and buyer.

 

2.1.2.2. Two Parties

There must be two distinct parties to a contract of sale, as a person cannot buy his own goods. But this does not mean that the parties to the contract of sale are only two individuals. Two persons is the minimum requirement. Thus, if Boron, Becky, and Naol jointly own a refrigerator, they can sell it to Anatoly, Becken, Haweny and Na’ansy. Boron, Becky, and Naol are sellers and have to discharge the obligation of the seller jointly. Similarly, Anatoly, Becken, Haweny and Na’ansy are buyers and they should jointly pay the price and take delivery of the refrigerator.

 

These two distinct parties are the buyer and the seller. The seller is the person who assumes the obligation to deliver a thing while the buyer is the person who assumes the obligation to pay money as a price. If, for instance, students of a hostel take meals with a mess run by themselves on cooperative lines, there is no contract of sale as there is no buyer and seller. This is because the students are joint owners of the meals they are consuming. The generally assumed fact is that every student is consuming his own goods on the basis of the understanding that he has to restore what he has consumed to get the mess to continue to provide meals for its members.

 

However, this does not mean that no sales contract may exist among joint owners with respect to the thing they own jointly. If, for example, Ato Merga and Ato Alem own a house jointly, Ato Alem may sell his share and such juridical act is under the definition of sales contract and both parties can be considered as buyer and seller. What should be born in mind is that whether, in the later example, the joint owners are “part owners” with divisible share in the house.

 

Sometimes there might be contractual transaction concluded by one party with himself. An agent may possibly sell his car for himself pursuant to Article 2188 although it is subjected to cancellation by the principal. It is questionable if it can be sale contract with the meaning of article 2266 of the civil code.

 

2.1.2.3. Delivery and Transfer of ownership

The owner of the thing must agree with the other person to deliver and transfer ownership of the thing. A mere agreement to transfer possession cannot be termed as a contract of sale. The seller must transfer or agree to transfer ownership so that contract of sale is concluded. This essential characteristic distinguishes many contracts from contract of sale. For example, in the contract of letting and hiring the owner (the lessor) of a thing delivers the thing to the other person (the lessee) but ownership is not transferred. For example, Mr. X hires a horse with its cart from Mr. Y at 20 Birr per day for a week.  Mr. X takes the horse and used it for transporting certain goods from one place to another. Mr. Y (the owner) did not transfer the ownership to the Mr. X (the lessee) and he did not agree to transfer ownership. In cases of contract of bailment, the owner (the bailor) also delivers the thing to the other person (the bailee). Nevertheless, the owner does not transfer ownership to the bailee.  This is because transfer of possession by delivery transfers ownership although transfer of possession does not necessarily show transfer of ownership.

 

2.1.2.4. The Thing

The definitional provision also puts “things” as an essential element of sale. The subject matter of contract of sale must be “things”. Normally all things cannot be subject matter of sales contract if they cannot be appropriated by human beings. Someone who agrees to sell a moon cannot be said to have concluded contract of sale for the thing is not good because it cannot be appropriated. The word thing shall, accordingly, refer to goods, as it is only goods, which can be possessed and owned.

 

As far as goods is concerned, there is no direct meaning of goods in the Ethiopian civil code. Be that as it may, the meaning of “goods” can be inferred from different Articles as of 1126. Art 1126 says verbally “All goods are movables or immovable” Although all goods are either movables or immovable all movables or immovable may not be “goods”

 

Article 1127 of the Civil Code gives the meaning of movables under the title of corporal chattels. According to this provision, things which have material existence and can move themselves or be moved by themselves without losing their individual character” are said to be corporeal chattels. Assimilated incorporeal chattels are also included under things.

 

If the corporeal chattel is to be manufactured or produced by the person who undertakes to deliver the thing, the main materials for the production of the thing shall be provided by the seller. If the party who is going to receive delivery provides the necessary materials for the production or manufacturing of the thing it is said to be contract of service. The party who is delivering the thing is giving his service not a thing. Article 2269 of the civil code is destined to connote the difference between contract of service and sales contract.

 

2.1.2.5. The Price

In addition to goods consideration expressed in terms of money is also an essential element of the definition. The consideration for contract of sales must be in cash. This consideration in cash is price. The apparent peculiarity of sales contract from the general contract is the presence of consideration as its element. Thus, a contract of sale must involve consideration in return for transfer of ownership. Consideration normally connotes reciprocal obligation of the parties assumed in the contract.

 

If consideration is required to exist there shall be corresponding obligation and one obligation shall have inducement role on the other corresponding obligation. If there is no consideration, it is a contract of donation not a contract of sale. The basic difference between contract of donation and contract of sale is that in donation there is no consideration while in contract of sale there is consideration.

 

The price to be paid and the goods to be delivered shall exist as obligation of the buyer and seller. They shall also have inducement relationship, as consideration is one element of sales contract. If the consideration is in kind it is a contract of barter not a contract of sale. Thus, it is essential that money be used us a medium of exchange. Barter in which goods are to be exchanged for goods is not sale albeit its being moot if it is contract at all. There must be price in terms of money. However, this does not take as to the extreme that negotiable instruments like bills of exchange or check cannot be used.

 

? Can you say there is a contract of sale if the party agreed that part of the price should be paid in kind?

 

Abebe sold his Acer® desktop computer to Belete. According to their agreement Bekele would deliver two 21 inch Sony® TV sets and 1500 Birr as a consideration for the computer. Abebe has taken delivery of the TV sets and Belete has also taken delivery of the Computer.

 

? Is there contract of sale between Abebe and Belete?

 

Sale and agreement to sell are treated separately in certain countries albeit both might be included in contract of sale. Contract of sales is sometimes considered to be a generic term including sale and an “agreement to sell”. Sale refers to contract of sale where the goods are transferred to the buyer immediately at the time of the conclusion of the contract. It is referred to as an “absolute sale”. A contract where transfer of an ownership right is effected immediately, exemplifies such a contract. Although delivery might be made in the future sale is an executed contract if the agreement is sale or absolute sale.

 

Agreement to sell is on the other hand an agreement where transfer of right of property is effected at a future time or after the fulfillment of certain conditions. It is an excluder contract. There is no transfer of property right at the time of the formation of the contract the conveyance of property takes place later following the formation of the contract.

 

Such distinction has not been clearly provided in the Ethiopian Civil code. The definitional provision of Ethiopian law of contract seems to deal with contract of sale in the context of an agreement to sell; sale implying immediate conveyance of property creating jus in rem i.e. right to enjoy goods against the whole world seems to be excluded.

 

The definition of general contract and the definition of the contract of sale are evident. As sales contract is a contract, the definition of contract is applicable on it. Accordingly; as a contract is “an agreement whereby two or more persons as between themselves create vary or extinguish obligation, the obligations created by sale is also between the contracting parties. In addition to this Article 2266 of the civil code connotes one contracting party undertakes to discharge his obligation towards the other contracting party. This implies that sale under Ethiopian civil code is an excluder contract.

 

In addition, there is also an agreement which looks like an agreement to sale that is promise of sale. However, promise of sale is an agreement where one party gives his word to sell a certain thing for a certain price. But, this is not a contract of sale strictly speaking. The contract of sale is to be concluded later not at the time of promise of sale. The promise of sale is preliminary contract for sales contract.

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