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Unit II Effects of Administrative Contracts

Unit II

Effects of Administrative Contracts

Introduction

This unit will basically deals with the task of evaluating the law of performance with respect to administrative contracts. After forming a valid contract the next logical issue will be executing the contract. Performance will therefore be execution.

The unit also discusses the modality, time and form of performance. The unit also presents discussion.  non performance where If will discuss such issues as effects of non-performance, notice and forced performance. Finally the unit discusses variation of administrative contracts.

           Unit Objectives:

At the end of the unit students will be able to:

  • explain the peculiar features of administrative contracts with relation to performance, non-performance and variation.
  • identity pre-contractual conditions that are pre-set to effectively execute administrative contracts
  • define performance and non-performance with regard to administrative contracts

Performance of Administrative Contracts

Preview

Normally performance includes an act of giving, doing or not doing as the case may be in view of the creditor, the creditor’s agents or anyone who is to benefit from under the contract.

Performance of a contract under normal course of things extinguishes the obligation. Upon performance the respective obligations of the parties to the contract will come to an end.

In principle, a contract is binding upon the parties to it as if it is a law. Art 1731(1) to this end prescribes as:

“The provisions of a contract lawfully formed shall be binding on the parties as though they were law”

Thus the first source of obligation will be the contract duly formed by the parties.

The parties to an administrative contract are the administrative agencies and the contractors. Contracts validly formed by the parties will try to address the who? Whom? And how? questions that are associated with  the contract and the consequent performance.

Who should Perform?

The contract can be performed by the debtor, his agent or by a person authorized by court or law (Art. 1740(2). The persons authorized by law are tutors, liquidators, trustees and a person authorized by court is either a curator or an interested creditor who wants to save the rights of the debtor by performing his obligation. However, the law never mentions about performance of a contract by a third party who is  not authorized by debtor, court or law.

Never the less, we can easily argue that if the creditor accepts the payment, the debtor has no right to stop a third party from performing the obligation since the creditor has a right to assign his right to a third party without the consent of a debtor (Art. 1962). In such case, if the debtor insists on paying the debt, he can pay it to the person who has already paid the creditor (Art. 1824). The law refrains from including unauthorized third party in the list of Art 1740(2) since assignment of a right is a contract. A creditor is not duty bound to receive payment from a person not authorized by debtor, court or law. He/she is free to accept or reject such payment without any effect on his/her right against the debtor.

However, the creditor may sometimes insist that the debtor himself should perform the obligation (Art. 1740(1). This is when the contract or the law expressly provides that the debtor shall perform the contract personally. For example, Ethiopian Labor law provides that the employee should perform the contract personally. 

The second case where personal performance becomes necessary is when the creditor proves that personal performance is essential to him. The creditor can prove such only when the obligation is obligation to “do” of a professional nature or art. For example, a lawyer, or a doctor can not authorize a duty which he agreed to do. Moreover, a musicians, painters, Poet, actor, dancer etc cannot authorize someone to perform his obligation.

Generally, the creditor should accept performance either from the debtor, his agent or person authorized by a court of law unless he proves that personal performance of the contract is essential to him by the contract or a the law expressly provides personal performance.

The rule under our law is available under Art.1740 (2). According to this provision “… the obligations under the contract may be carried out by a third party so authorized by the debtor, by the court or by law.”

Thus a contract may be performed by anyone, not only and solely by the debtor but by an gone. We require the debtor and only the debtor to perform the obligations under the contract if “… this is essential to the creditor or has been expressly agreed.” (Art.1740(2)] if the creditor benefits  only if the debtor personally performs the obligation then only the debtor personally should perform the obligations under the contract. On the other hand if there is an express agreement to this effect of performing the contract personally by the debtor then even though not essential to the creditor still the obligations should be executed by the debtor.

Does this rule squarely fit to administrative contracts?

An example

Assume ERA (Ethiopian Roads Authority) enters into a contract with XYZ construction company to construct a bridge on river Abbay. Can XYZ Construction Company pass the obligation to CRBC?

  • If among other things XYZ was picked by ERA for the artistic genius of the company then the design cannot be performed by any other company. (1740(1))
  • If the contract with ERA is to construct a bridge and nothing else, XYZ construction may authorize CRBC. (1740(2)]

Art 3172(1) says “… contracting parties shall perform their obligations in a manner provided in the contract”. Based on this provision contracting parties may agree to the effect of carrying out obligations personally.  Even the last sentence which reads “… or has been expressly agreed” authorizes parties to have the said stipulation of imposing an obligation on one of the parties to enable personal performance of the obligation.

What is wrong if a person bus is not authorized by the debtor, the court or the law performs an obligation?  In the case of administrative contracts, we have Articles 3201-3206.Let us briefly consider the case together with for who to perform sub-section.

For Who to Perform?

Performance can be made, according to Art. 1741, to the “creditor or a third party authorized by the creditor, by the court or by law to receive it on behalf of the creditor.” Therefore, the debtor should take every caution so as not to pay either for an incapable creditor or to an unqualified person.

With respect to incapacity, the law is referring to one whose cause is interdiction or absence for that matter. This is so in association with physical persons. But administrative contracts involve parties that are juridical persons. Thus at least one of the parties to an administrative contract is a juridical person. Accordingly the incapacity consideration with regard to juridical persons is a different one. Thus it cannot be insanity or senility. That is, the causes of incapacity that we know with respect to phssical persons are not important here. Rather we should look for the causes somewhere else.  Can you mention any ground of incapacity for a juridical person? Or rather from where does a juridical person derive its capacity?

A juridical person derives its capacity from the law or the instrument that establishes it. Establishment, registration and license are some of the sources   which confer capacity. As the case may, be the law prescribes how juridical persons derive their capacity. Accordingly, they may derive their capacity from a proclamation or a memorandum of association. Proclamations are usually sources of capacity to administrative authorities while a memorandum of association serves to establish enterprises. Therefore a juridical person lacks capacity when it is not constituted in accordance with one of the ways mentioned above. This is not the only way. Administrative authorities may lack capacity after due constitution. This usually results following the revocation of license, dissolution or even amalgamation. Paying to an administrative authority which has undergone through one of the above processes will amount paying to an incapable creditor.

When does one pay to an incapable administrative agency? Can you imagine a situation when an administrative agency enters into an agreement with full capacity but afterwards lacks its capacity?

If this happens, the debtor cannot validly discharge his/her debt by paying to such an entity.

Most of the time the obligations incurred on the part of the debtor involve non-monetary obligations. Non-monetary obligations are susceptible to manipulation because it is difficult to gauge in terms of objective standards such as numbers.  So the general contract provisions might not be properly operative under administrative contracts. Let us briefly discuss provisions of the law that govern the manner of performing administrative contracts.

Bona fide performance

One of the pillars of contractual relationships is good faith .Good faith in turn is something expressed and not legislated-better practiced and inferred and not derived.

Because bad faith or good faith, as the case may be, is a state of mind which hardly can be implied without being expressed, one should seek the same from circumstances.

One outlet of good faith during performance will be carrying out our obligation diligently. Diligence still is susceptible to manipulation unless we have a working standard for the same. Our law provides the requirement of diligence and the nature of the same under Art.3172 (2) and Art.3172 (3). To begin with, Art.3172 (3) prescribes “[The contracting parties] shall perform [their obligations] diligently.”

To this end the obligations shall be performed in a correct manner deemed to be satisfactory according to the rules of art prevailing at the time and in the kind of activity concerned “(Art.3172 (2))

Our law postulates diligence as a standard of good conduct. Unlike other systems our law further goes in trying to stipulate this very standard of diligence.

How should one understand diligence under the Ethiopian civil code? It is synonymous with the rules of the art prevailing at the time and kind of activity. Different trades prescribe as to the how works are done. These prescriptions might have evolved from custom or written and learned rules of conduct i.e. rules of ethics. To see whether one is diligent or not it suffices to see whether he/she is acting in accordance with these rules while carrying out duties. Additionally these rules of conduct are conditional on the type of activities. Rather than dealing with the most volatile and hypothetical concept of diligence our law tries to crystallize it and associate it with the more concrete concept of prevailing art.

Manner of Performance.

The modality of performance is conditioned on the letters and spirits of the contract. This can be gathered from Art.3172 (1). Furthermore, the “unless otherwise agreed” proviso of Art. 3173 stresses on the fact of giving the chance to the parties of an administrative contract in determining the manner of performing the contract. Hence the law itself gives priority to the contract to which parties have the freedom to form and determine its content.

In the absence of a contractual stipulation, however, the law authorizes the contractor to “… choose the suppliers for the purpose of buying materials and things necessary for the performance of his obligations.” This is as to Art.3173 (1). Still in the absence of an agreement Art.3173 (2) empowers the contractor to” …choose the workmen or employees to perform such obligations under his responsibility.”  As you might guess administrative contracts do not end where they begin. There are large projects which require special expertise. Among other things, for efficiency and quality reasons it might be important to invite parties other than the original ones to the contract. These people include the sub-contractor, the architect and the sub-architect.

Time of Performance

Implicit to the freedom of contracts principle, parties to any contract have the freedom to determine the time when they execute their obligations. Thus “Payment shall be made at the agreed time” of Art.1756 (1) is the principle. Art 3174(1) reiterates this very principle when it says “each contracting party shall perform his obligations within the time fixed by the contract.” What if such time is not fixed? Well, Art. 1756(2) says “… payment may be made forthwith.” “When is forthwith”? Does it mean immediately?

It is not “immediately” in our case because Art.3174 (2) says “failing a specific provision in the contract each contracting party shall perform his obligations within a [reasonable time].” We say a “reasonable time” proviso is more reasonable than a “forthwith” one. Why? The law still has the spirit of sensitiveness with regard to time matters when it prohibits administrative authorities from unilaterally imposing a time on the contractor. Art. 3175 reads:

“The administrative authorities may not impose unilaterally on the other contracting party a time which has not been agreed upon for the performance of his obligations unless they may under the contract fix such time by means of requisition orders”.

Accordingly administrative authorities are legally insulated from the practice of taking contractors by surprise. This prohibition is even against the prerogatives of administrative contracts such as one under Art. 3179. Art. 1756(3) invites another instance of requiring performance. As such, “payment shall be made whenever a party requires the other party to perform his obligations.” But should this be dependent on will and whim of the requiring party? No! The law provides standards under Art.1757. Let us see Art. 1757(1)

Only a party who benefits by a time limit having regard to the forms or nature of the contract or [who has performed] or [offered to perform] his obligations [may require] the other party to carry out his obligations under the contract.

Therefore, to require one should perform or at least offer to perform his/her obligations. To require the other to perform his/her obligations, one should either perform his/ her obligations or at least show his/her preparedness to perform the obligations.

This principle is the so called “exceptio non adempleti contractus.”

As a natural consequence of course, one party is entitled to refuse to perform where the other party clearly shows that he will not perform his obligations or where the insolvency of the other party has been established by the court.” [Art. 1757 (2)]

This scenario is excepted however under Art. 1759. (You may refer this same Article)

One other exception of the principle is available under Art.3177. Thus unless the non- performance of the contract is impossible, the contractor may not avail himself of Art 1757(2). Let us read the full text of 3177.

  1. The non- performance by administrative authorities of their obligation shall not entitle the other party to fail to perform his obligations unless it makes impossible the performance of such obligations.

In other cases, the other party may not avail himself of the failure by administrative authorities to perform their contractual obligations .Now, please read Art.1757 (2). What do you understand?

Policy Considerations

Under this title we will briefly consider the policy considerations that lie behind administrative contracts. Even though behind each rule and for that matter behind administrative contract law generally we have a policy consideration, taking Articles 3177 and 3178 will basically show what is at stake if we are not going to treat administrative contracts as specialties.

Article 3177:

The essence of this article is that the contractor may not refuse to carry out his/her obligations, simply because the administrative authority has failed to carry out its commitments. Because administrative authorities are into a contractual relationship representing the public, pursuing such an interest solely based on general contract provisions will jeopardize the general interest. Imagine a contractor that is at every liberty to refrain from supplying a service to the public for failures on the part of authorities to effect the necessary payments. In this case the law has opted to oust the contractor from the normal right of withholding once own performance while on the other hand enabling administrative actions against unreasonable authorities.

Article 3178

What is a fiscal debt? Why is fiscal debt not subject to set-off? Is there any possibility of setting off debts under administrative contracts?

Art 3178 talks of the possibility of setting off debts. But it automatically rules out set off in the case of fiscal debts. One example of fiscal debt is the debt that we owe to the state in the form of tax. Art.3178 accordingly bars anyone from setting off such a debt to extinguish a debt. We cannot set off the debt we are owed to against the tax that we owe to the public. Fiscal debts such as tax should be performed without preconditions. What is the concern of Art.3178? Its full text reads as follows:

“Set off may not be invoked by a person contracting with the administrative authorities except in the case of debts other than (fiscal debts)”.

 The general spirit of the law with regard to set off is expressed under Art.1833 (b) which reads as “set off shall occur regardless of the cause of either obligation except where the obligation is owing to the state or municipalities”. But Art 3178 further explains the obligations that we owe to the state by saying that they are “fiscal debts”.

Non Performance of Administrative Contracts 

One of the points where contracts prove to be laws and not mere agreements is upon non performance. Contracts are not mere agreements because upon non-performance they have legal effect- an effect sanctioned and enforced by the law.

We speak of non- performance only when the obligations undertaken by the parties are not executed. Otherwise performance extinguishes obligations. If obligations are not performed in accordance with the spirit and letter of the contract then the non-performing party will be, as the case may be forced to personally perform or to pay damage to neutralize the costs of non-performance. These are not the only consequences of non-performance. Let us consider the effects of non-performance under our law.

Effects of non-performance

Depending on circumstances, a contracting party is entitled to take measures independently or cumulatively. What are the measures under the law? As per Art.1772, requiring the enforcement of the contract or the cancellation of the contract as of self help is authorized. “In addition,” it is also possible to require compensation for damages sustained because of non-performance.

But these rights under Art.1771 should be preceded by one condition of the law and that is giving notice. Let us briefly consider these rights under the law.

Notice

Even though the special rules that regulate non- performance of administrative contracts only presume and do not clearly prescribe the necessity of putting a non-performing party in default with notice the general rules that regulate contracts regardless of their genre emphasize on the necessity of giving notice. Before considering basic issues that circumvent notice let us discuss the importance of giving notice.

As a matter of law default notice puts the non-performing party in default. The notice in this sense is an indispensable proof of the intention of the non-performing party. Notice plays this role because it helps the performing party to solicit the real intention of the party to be put in default.

Not less important, notice signifies the right time to determine transfer of risks. Date of notice denotes the date of transfer of risks.

If so, the law prescribes in favor of default notice as a condition to be complied with in case one is going to implicate a non- performing party to this end that he/she is not performing. Art.1772 underlines the issue as:

“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 his obligations under the contract”.

This being the rule, Art.1775 excepts the general requirement of notice under Art 1772. On the face of the situations envisaged under Art.1775, the law withdraws the requirement of giving notice Generally, we have four conditions under Art.1775 If the obligation is to refrain from doing something, if the obligations assumed are those to be carried out within a fixed period of time and when they are not carried out within this fixed period, where the debtor clearly shows in writing his/her intention not to perform or when the parties have an agreement not to give notice then the law out rules the importance of giving default notice.

What does the picture look like in the empire of administrative contracts?

Art.3196 for example mentions notice only occasionally while it is prescribing about “interest for delay”. That is why initially we said administrative contract rules presume and only presume but do not legislate on notice issues. This clearly shows that the general rules of notice are applicable by default no matter what form the contract takes. Even in the absence of the inference we made, the master draftsperson’s commentary on the subject matter makes the point clear. As such he held “Articles 3194-3200 present us Articles 1771-1805 by further elaborating and innovating them”. None the less, Art. 1775 inspires us about the contract that will possibly determine the fate of default notice. With the exception of Art.1775(c) the other provisions under Art. 1775 are inspiring of the content factor.  Another instance where default notice is mentioned, in the mean time of course, is Art.3198. These two occasions under Articles 3196 & 3198 are indicative of the effectiveness of the general provisions of contract.

But notice that the terms of the contract will however determine the necessity or other wise of notice.

Example

The Ministry of Agriculture has recently entered into a contract with a Chinese construction company to construct a “Millennium Hall” to be operative upon the beginning of the new millennium by entertaining on this first day a big music festival. Unfortunately the company was incapable to do so. Rather if given three months the engineers are pretty sure to finalize the work. They know this standing on 1 Pagume 1999. Should the Ministry give default notice?

As a reminder let us consider some issues in lieu with notice. The first being the form of notice, the consequent will be a discussion about time of notice.

Form of Notice

The law is not that much concerned with the form of notice Rather the motive of the law of notice is assuring the intention of the creditor in unequivocal manner. Thus if we are in every position to meet this desire of the law our notice may take any form. Art.1773. further says:

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

Accordingly, we may confidently say:

  1. Notice may take any form
  2. Notice should clearly show the intention of the creditor.
  3. Notice may not be given unless the obligation is due

One question worth asking however is, “Is it “important to prove notice”? Well, as was said, the form of notice and strict adherence to such form is not a question of law. However it could be a good question of fact. Stated otherwise, the law does not force us to follow one or another form. However, issues of proof oblige us to give a notice which later on can be adduced without difficulty .Therefore, for good or for bad it is wise to give default notice whenever important, in the wisest form possible.

Time of Notice

In general, creditors have this right of fixing a period in the notice they give. Such period puts the time frame within which the creditor expects performance of the contract. Under such notice the creditor will clearly show his intention not to accept performance after the lapse of the stipulated period. The law does not fix such a period as it does not prescribe a certain form of notice. Never the less, the law does not hesitate to attribute a minimum content to the notice. To this end such a notice is expected to be “reasonable having regard to the nature and circumstances of the case”.

Forced Performance 

As a concept, forced performance denotes the possibility of physically forcing the debtor to perform the stated obligation, to deliver a property, to pay money or to undo what was done contrary to the terms of the contract. The word ‘forced performance’ implies the compelling of the debtor to discharge his/her obligation. It refers to performance directly imposed on the debtor through the execution process. Thus, it takes place through court order/judgment. However, it is important to note that the court may not order forced performance merely because the creditor has requested so. The court has the power to order forced performance or decline considering the requirements set by the law. Article 1776 provides the conditions for ordering forced performance or otherwise. It reads as follows:

Specific performance of a contract shall not be ordered unless it is of special interest to the party requiring it and the contract can be enforced without affecting the personal liberty of the debtor.

Pursuant to this provision the requirements for the application of forced performance are (1) the creditor’s special interest, and (2) the preservation of the debtor’s personal liberty. These requirements are cumulative not alternative.

The first thing that the court shall determine is whether performance is ‘of special interest to the creditor’.  The presence of special interest can be inferred from the importance of the obligation required to be discharged towards the creditor and its possibility of being discharged otherwise. If forced performance has no special advantage to the creditor, then the court may not order it.

 Then, the court shall consider whether forced performance affects the personal liberty of the debtor.   A person cannot be deprived of his liberty for failure to discharge contractual obligations. Thus, if forced performance affects the personal liberty of the debtor, the court shall not order it.

The two conditions must be fulfilled for the court to order forced performance. Here are some examples. Assume, a monopolistic entity which supplies vital goods (e.g. water or electricity) or services (e.g. postal or telecommunication) to   customers cuts of its supplies. In this case the goods or services are so essential, and the customer cannot get them from other sources. Thus, it may be said forced performance is of special interest to the creditor, i.e., customers. At the same time, order the entity to provide these goods or services cannot deprive the entity’s liberty (as only physical persons enjoy liberty).  So, in this case the court may order forced performance.  

In addition to forced performance, the law provides substituted performance as a remedy for non-performance under articles 1777 and 1778. Substituted performance is made at the expense and cost of the debtor.

Art. 1777. –Obligation to do or not to do.

(1)   The creditor may be authorized to do or to cause to be done at the debtor’s expense the acts which the debtor assumed to do.

(2)   The creditor may be authorized to destroy or to cause to be destroyed at the debtor’s expense the things done in violation of the debtor’s obligation to refrain from doing such things.

Pursuant to sub-article 1, the court may, upon creditor’s application, authorize the creditor to do or to employ third person to do what the debtor has failed to do at the cost and expense of the debtor. Pursuant to sub-article 2 the creditor may be authorized to destroy or to employ third person to destroy the things done by the debtor in violation of his obligation not to do such things. The cost and expense of such destruction shall be borne by the debtor. Court authorization is, however, indispensable for substituted performance. With out such authorization, the creditor can not recover the costs and expenses from the debtor.  Articles 2330 and 2333 on law of sales are in the same line with concepts under Arts.1776 and 1777(1). Under Art. 2330, the buyer may not demand forced performance in conditions where purchase in replacement is possible for the buyer. The same is true for the seller when the buyer refuses to take delivery and pay the price. Here, the seller may not demand forced performance in circumstances a thing in respect of which a compensatory sale is imposed by custom.

Sub article (2) of this provision confirms substitute performance of obligation not to do.  The creditor can destroy or get destroy the things made in violation of the obligation to refrain from doing such things with court authorizations at the debtors expense.

 Article 1778 also deals with substituted performance in respect of obligation to deliver fungible things. It reads:

Where fungible things are due, the creditor may be authorized by the court to buy at the debtor’s expense the things which the debtor assumed to deliver.

Where the fungible things are due the debtor may have substituted performance be made up on court authorization to buy the thing at the debtors expense.

 The provisions of Articles 1779-83 are also aspects of substituted performance but they apply in different circumstances. When the debtor is ready to perform but unable to discharge his obligation either because the creditor refuse to accept performance or the creditor is unknown or uncertain or where delivery cannot be made for any reason personal to the creditor. In all these situations, the debtor has no fault; ready to perform but prevented from performing. Thus, the law allows him to discharge his obligations by depositing the thing or money at such place as instructed by the court. This will relieve the debtor from his obligations. However, the deposit shall be made upon court order and the debtor shall obtain a court confirmation as to the validity of the deposit.

The issue of forced performance is sensitive because it involves the physical coercion of a personality. The jurisprudence behind it emphasizes that contracts are not servitudes so they should not go to the extent of subjugating the personal liberty of a person. The concern therefore is freedom, the fear being making the debtor the slave of the creditor.

Therefore, forced performance is a situational remedy available if certain conditions are met.

Art.1776

Unless the performance in that way is of special interest to the party requiring specific performance and unless the contract can be enforced without affecting the personal liberty of the debtor, the court cannot order the specific performance of a contract.

Two conditions in a cumulative way should be fulfilled if the court is to order specific performance.

In no case however forced performance can exist as an instance of self help. This one should be taken as a third condition.

When thinking about specific performance, we have to think of a court weighing circumstances on the basis of Art.1776.

Turning to administrative contracts we have Art. 3114. As of rule, Art.3194 (1) says “the court may not order the administrative authorities to perform their obligations.” As of prerogative, Art 3194(2) provides administrative authorities with the choice of paying damages or performing their obligations.

What is wrong with forcing administrative authorities to “institutionally” carry out their obligations? Does it amount to subjugating their liberty? What is their liberty?

Under Art.1776 the nature of the obligation determines the order of the court. If the obligation is to be carried out and if this is to the special interest of the creditor and if carrying out the obligation does not jeopardize the personal liberty of the debtor the court shall order the debtor to personally carry out the obligation.

The “personal liberty” requirement cannot be extended to administrative authorities at least for two reasons. In the first place administrative authorities have “institutional” not “personal” trait and the law speaks of “personal liberty”. In the words of John Salmond, not all the rules that apply to natural persons need be extended to corporations. Secondly, the law under Art.3194 (2) tacitly admits that the performance of an obligation by the administrative authorities does not jeopardize their liberties. The law puts the performance of obligations at the mercy of the administrative authorities.

Is Art 3194(1) amenable to manipulations? For example assume Ethiopian Roads Authority signing an agreement with BXC Construction Company on the terms that ERA will cover the costs and fees of the work while BXC Co. undertakes the obligation of designing the work, supplying construction materials and workman and constructing a bridge. ERA fails to cover the costs and fees. Can BXC Co. apply to the court requiring the same to order forced performance? Why? Why not?

Art. 3194 is operative on the assumption that administrative authorities are debtors. What if the contractor is the debtor? Can we force him to perform the contract personally?

Cancellation of Administrative Contracts

Cancellation denotes the situation where parties declare the cessation of obligations prematurely. This is done for different reasons. Among other things, parties resort to cancellation when one or both of the parties fail to do what otherwise they ought to do, do what they ought not to do or when one fails to deliver what he/she has to deliver  for different reasons.

 What can be taken as one other effect of non- performance is cancellation of the contract. Legally we have an out sourced and a self sponsored cancellation depending on circumstances. Thus cancellation may be a self- help measure when parties have previously agreed about it in their contract, where one of the parties has failed to perform his obligation within the time fixed as per Articles 1770, 1774 and 1775 or where performance by one of the parties is hindered or has become impossible. This last condition is independent of the first two because cancellation is demanded before the obligation has become due. Thus, Article 1788 holds “A party may cancel the contract even before the obligation of the other party is due where the performance by the other party of his obligations has become impossible or is hindered so that the essence of the contract is affected”.

These above conditions authorize parties to unilaterally cancel their contracts. Unilateral cancellation should not imply cancellation solely undertaken by the party resorting to it. Far from this, there are conditions that call for the intervention of courts.

Art 1789 envisages still another probability warranting a self-sponsored cancellation of contracts.

But this self-help measure is available so far as the conditions mentioned above are fulfilled. Short of that, cancellation should be effected only upon the authorization the court. (Art.1784).

This still is not tantamount to that courts will not intervene under cases mentioned earlier before and coming under Articles 1786, 1787, 1788 & 1789. Rather, the specific instances envisaged may require the authoritative determination of courts.

The position of the law under general contracts being this, what does it say concerning administrative contracts? Basically the special rules that deal with administrative contracts do not say anything on this matter. This however may not force us to conclude that parties under administrative contracts do not have this remedy at their disposal. Far from that Art.1676 is indicative of the possibility of applying those rules on cancellation in case of administrative contracts. 

In association with this discussion none the less it is worth commenting on Art.3180 which talks about “termination of contract.” We underline the worth of this because the concept under Art. 3180 is susceptible to the following proliferated interpretations:  

  1. Taking Art. 3180 as a cancellation proviso and specially a unilateral cancellation proviso
  2. Taking Art.3180 as a termination proviso at face value
  3. Taking Art. 3180 as an invalidation clause specially when considering the Amharic version of this same Article.

A Synopsis of Invalidation, Cancellation and Termination: A cautious approach to Article 3180.

As you might have understood you clearly know by now, these three concepts are quite different concepts but they similarly signify the termination of a contractual relationship (Art 1807).

Focusing on the differences we see that cancellation implies normally and validly formed contract while termination implies the formation of another contract (note: please consider Arts. 1675 and 1819 again) in the first place. In the case of termination, we have a contract created an obligation and still a grand contract that has extinguished a contract thus ending up by having two contracts.

Invalidation means making an effective contract ineffective when it has a problem in its formation. Invalidation is related with the problem in the formation of the contract. Invalidation comes into question when one of the parties wants to be free from the contractual obligation owing to a problem in the formation of the contract.

Therefore, the mere presence of willingness of one party to have a contract invalidated is not enough and, the legally provided grounds shall also be fulfilled. Lack of capacity and lack of sustainable consent are among the grounds that render a contract invalid.

The nature of invalidation of a contract is reflected in its effect. Now that invalidation of contract takes us to the conclusion that the contract is not properly formed, the effect of contract is said to be restitution. The contracting parties are put to the place where they were before the formation of the contract.

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 lies in 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 their ground is the only difference. They are also different in their effect. Even though 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. Even though 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 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. 

According to 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 spirit of the provisions, contracts whose object is not sufficiently defined, impossible and which do not in a prescribed form seem 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 as 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 give one of the parties the power either to invalidate the contract or give it effect. Therefore since the grounds provided under Articles 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. Even though 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 the picture 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 contracting parties. 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 alboslutely impossible 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 contract; it is rather a mere draft. From this inferred conclusion it is not illogical to infer that a contract, which is not made in a prescribed form does not have legal effect. For someone’s amusement this provision even says that it is not a contract but rather a mere draft. Invalidating an agreement which is not contract seems to be absurd.  

Having the above affirmation in mind, Article 1808 seems to be in contradiction with the very nature of invalidation that is rendering a contract ineffective and with the provisions, which deal with the effect of noncompliance of the requirements. This provision is also on the grounds of extinction of obligation. Invalidation of a contract is one of the grounds. Unless a contract, which shall be invalidated, is not invalidated, the obligations created are not extinguished in the absence of other grounds. It is questionable if this is true for a contract whose object is undefined, unlawful, immoral or impossible. From the very beginning no legal obligation is created under such contracts

If it does not have legal effect there is no need to have such agreement invalidated. There is not any created obligation to be extinguished by invalidation. Such nature of void contract casts doubt if invalidation of such contract really extinguish obligation as void contracts do not create effective obligation as it has been seen before. Be that as it may the invalidation of contracts which have no effect by the function of law has been put under the extinction of obligation by invalidation.

An invalid contract can result in the extinction of contract even though it is not invalidated. Notwithstanding the fact that a contract is invalid, the reaction of contracting parties to a contract is not necessarily invalidation. Contracting parties can also resort to other options like refusing performance without having the contract invalidated.

Article 1809 denotes that a party entitled to invalidate a contract can refuse performance at any time. The contracting party can extinguish the obligation by refusing performance of a contract. Albeit the absence of the act of invalidation, the obligation will thereby be extinguished. The right to refuse performance seems, however, to be made at any time without any prescription. 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.

 Invalidation, on the other hand, implies a contract that is not validly formed in the first place. Depending on cases such a contract might be void or voidable contract. Hence, lack of consent, capacity, form when required) or lack of a legal or moral object among other things may cause the invalidation of the contract. Semantically Art.3180 is about termination and still about invalidation (for the latter case it is wise to refer the Amharic Version).

But what are the real causes that set Art.3180 in motion? Let us consider the full text first:

“The administrative authorities may terminate the contract notwithstanding that the other party has committed no fault where the contract has become useless to the public service or unsuitable for its requirements”.

The existence of two independent conditions justifies the decision of an administrative authority to “terminate” a contract. One the contract should prove to be” useless to the public service” or the contract should “become unsuitable for its requirements.”

Do these remind you of Art.3170 which deals with lack of cause (object) on the part of contracts? Can you now read Art.3170 with Art.3180 and ultimately with our previous discussion on invalidation thereby referring to Art.3180 (2).

Summary

This chapter discussed the effects of administrative contracts in conjunction with ordinary contracts. It has shown We saw that the effects of administrative contracts are many fold.

Some of the effects considered include performance and non-performance, each having their own effects.

In our consideration of performance as one of the effects of administrative contracts, we raised issues as for whom to perform? How to perform? When to perform and other related issues were addressed.

As it is another one other effect of administrative contracts, we deliberated on the question of non-performance and Its consequent effects. It was at this juncture that we considered the giving of notice and forced performance. Especially the case of forced performance of administrative contracts was underscored as it was special

Finally cancellation and invalidation were considered as part of effects of administrative contracts. We said that the two concepts are quite different and stand on different jurisprudential pillars. While cancellation presupposes a validly formed contract invalidation presupposes unhealthy contract from the outset.

Review Questions

  1. Discuss the similarity and the difference among cancellation, invalidation and termination in light with administrative contracts.
  2. How do you understand the concept of capacity in administrative contracts? Give examples that will illustrate an incapable administrative authority.
  3. Why do not we have a special formality requirement with regard to default notice? What justifications are raised by those who advocate the importance of following a special formality requirement?
  4. Explain the principle of “exceptio non adempleti contractus”.
  5. What is a fiscal debt? Explain by giving examples.

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