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Non – performance and its legal effects Under Ethiopian Law of Sales

2.4. Non – performance and its legal effects

Having discussed transfer of risk in section three, non-performance and its legal effects will be discussed. Under non-performance of contract and its legal effects a discussion will be made on the meaning of non-performance and provisions from which the meaning of the term can be inferred will be analyzed. The purpose of remedies of non-performance as its legal effect will be dealt with. The precondition of default notice as a legal effect of non-performance will then be discussed, along with its purposes. After studeying this section student should be able to:

  • Identify whether certain discrepancy between the agreement and the actually performed act is tantamount to non-performance.
  • List the pre-conditions of remedies of non-performance
  • State the time when default notice can be given
  • List the circumstances where default notice is not necessary

2.4.1 Meaning of non-performance

Non-performance of a contract refers to the failure of the contracting parties to discharge their obligation. Contracting parties assume obligation which emanates from the express agreement of the contracting parties, from the incidental effects of the contract and from the gap filling provisions. When the contracting parties do not comply with these obligations it can be said that there is non-performance of the contract.

Even though the definition of non-performance of contract has not been made in the civil code different provisions imply failure to discharge these assumed obligations according to the agreement or with trivial discrepancy. Article 2329, 2331, 2332, 2333 are among the provisions from which the meaning of non-performance of contract can be inferred.

Contract of sale is said to be non-performed or breached when either the buyer or the seller or both fail to carry out their obligations under the contract. Usually both parties to the contract for the sale of goods perform the obligations they agreed to in the contract. Occasionally, however, one of the parties to a contract may fail to perform his obligations for different reasons. A buyer, for instance, may fail to pay a purchase price at the agreed place or time or fail to take or receive delivery. Similarly, a seller may change his mind and refuse to deliver a thing sold or a buyer while enjoying a thing purchased may be disturbed by a third party claimant, or the thing delivered may be defective.

There is also non-performance of contract when a party not only fails to discharge his/her obligation but also fails to accept performance specially delivery. Article 1779 gives remedy for non-performance by refusal to accept the thing. It can be inferred from this provision that refusal to accept without good cause is non-performance of the contract.

2.4.2 Legal effects of non-performance 

Among the basic functions, which are carried out by contract law, providing remedies for non-performance of contract is the most important one. Party would be reluctant to enter into a contract in the absence of legal remedy for non-performance of contract. The purpose of contract law dealing with non-performance of a contract is avoiding the deterrence effects of non- performance on the parties for fear that their contract may not be performed.

The legal remedies for non-performance protect the concern of the party whose interest is affected by non-performance.  The interest, which might be effected by non-performance of the contract, is the benefit, which could have been gained, had the contract been performed.  Accordingly; the remedies are supposed to provide the party with the benefit of the performance of the non-performed or to put the party whose interest is affected by non-performance in a place he would have been had the contract been performed.

In addition to the party whose interest is affected by non-performance; the party who fails to perform is required to be protected, in the contract law dealing with non-performance.  The cost incurred, as remedying of non-performance should not exceed the reason by expected remedy of that specific non- performance, the party shall be protected from untreatably excessive cost of remedy of non-performance.

The general purpose of general contract in providing remedies of non-performance is not peculiar to contract of sales. The purposes, which are required to be met, shall also be secured in contract of sales.

The non-performance of the obligation in contract of sales begs striking a balance between the interest of the party who fails to perform and the party for whom the contract is not performed. Taking these interests into account most countries apply forced performance, cancellation and compensation of damage as a remedy of non-performance. Applying these remedies can be considered legal effect of non-performance of contract of sale. 

Under Ethiopian law of contract and contract of sale, before resorting to the remedies of non-performance, a contractant that requires such remedies shall put the other contracting party in default, This effect of non-performance of contract of sale, along with the manner of its application, is provided in Articles 1772 to 1775 as a pre-condition of remedies of non-performance of contract.

Art. 1772. – Notice necessary.

A party may only invoke non-performance of the contract by the other party after     having placed the other party in default by requiring him by notice to carry out obligations under the contract.

The connotation, enthroned in this provision is that, default notice is a pre-condition for the remedies of non- performance putting the party who failed to perform in due time incorporates certain purposes. The special provisions of sales contract also provide default notice as a condition for the remedies of non-performance when the date for performance is not compulsory according to 2338(2) and 2348(2) considering its importance. Articles 1773 has been, therefore, provided referring to the forms and time of notice

Art. 1773. – Form and time of notice

Notice shall be by written demand or by any other act denoting the creditor’s intention to obtain performance of the contract.

 Notice may not be given unless the obligation is due.

There is no any mandatory formal requirement of default notice. It shall, however, denote the intention of the creditor requiring performance. This intention can be expressed in either written form or any act capable of depicting that an unequivocal expression of intention shall be made.

Default notice cannot be made before the time of the performance of the contract. It shall be made when the obligation is due. In addition, the default notice shall include the time for performance upon the expiry of which the creditor will not be accepting performance.

The time, for which performance shall be made and upon the expiry of which performance is not accepted, is required to be put and be reasonable according to Art. 1774. Such reasonableness shall be determined taking into account the nature and circumstance of the case. Such circumstance might include whether the party has the object of obligation at hand. Whether it is to be manufactured in the future and the time for its manufacturing shall be considered.

It has also been stated that the buyer must notify the seller his intention to require forced performance, within a short period according to Article 2331(1). Thus, the buyer cannot require forced performance for unlimited period whether he has a particular interest or not. The buyer may also fix a reasonable period to the seller for making the defects or non-conformity good.  

Despite the fact that notice is a pre-condition for someone to resort to remedies of non-performance there are cases where the remedies can be applied without putting the other party in default. Article 1775, 2338 provides cases when remedies can be applicable without default notice.

When the obligation is assumed to be discharged within fixed period of time and that period expires, there is no need for notice. Compulsory date for delivery as of 2338 can the best example where default notice is not important. Such non-performance cannot be rectified by performance following notice once the time expires.  A debtor, assuming the obligation of selling birth date cake or selling soft drinks which has market price need not be put in default, if he fails to perform his obligation.  The contract can be performed only before the date of the birthday expires and the soft drink can be obtained in replacement.

Anticipated non-performance when the debtor declares not to perform the obligation in writing also excludes the pre-condition of notice to rectify non-performance. Reminding someone who declares not to perform has no any tangible effect for he knows the non-performance and he has already refused to do so.

In addition to this exclusion of notice for failure to discharge obligation, express stipulation in the contract also have parties apply directly the remedy of non-performance. When the obligation is not discharged in due date and express agreement excluding notice is stipulated in their contract, the effects of non-performance become applicable without notice.

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