Friday, March 12, 2021

Ethiopian Contract Law- Defect in Consent

Defect in Consent (Art 1696 – 1710)  

If the consent expressed in the form of offer and acceptance does not indicate what the offeree or the offeror really intended then there exists defect in consent. The cause of defect in consent is either wrong information (mistake, false statement, fraud) or threat (duress, reverential fear, threat to exercise rights) or lesion. Defect in consent may be a cause for invalidation of contract (Art 1696). However, the existence of defect in consent does not necessarily lead to the invalidation of contract. Firstly defect in consent can invalidate a contract only if a party who agreed to be bound because of information or threat demands invalidation (Art 1808). Secondly in some cases the party whose consent was defective may not be entitled to claim invalidation (1708, 1709, and 1710).

Defect of Consent due to Wrong Information

Mistake, fraud, and false statements may lead an offeror or offeree to have wrong knowledge about the content of the contract i.e. a person is passing a decision to be bound on the basis of wrong information. Let us see each of these causes of wrong information in some details.

                      

Mistake (Art 1996- 1703) is when a party makes misunderstanding on the content of the contract or on the identity of the other contracting party. The person might have committed such misunderstanding either because of his own poor inference from given facts or false statement or deceitful practice of others person. Please see the following examples


E.g.1. a buyer purchased a bracelet believing that it is 21 carat gold and latter on found out that it is 14 carat gold. A seller says nothing to the buyer about the quality of the bracelet. 

E.g.2. Kebede informed Belay that a certain tablet can cure hair fungus and Belay bought such tablet and discovered latter that Kebede was lying and the tablet is contraceptive pills.

E.g.3. Zenitu locally produced edible oil from corn and packed it in the container of internationally produced edible oil. 

One can invalidate or avoid his obligation on the basis of mistake if the following two conditions are cumulatively fulfilled (Art 1997, 1998).

                      

A/ mistake must be fundamental (Art 1998) – A mistake is fundamental when a person misunderstands the object of the contract or the person with whom he has entered into the contract. Art 1698 defines “fundamental mistake” in a very vague manner there by inviting interpretation. The clue for such interpretation is the clause “elements of the contract which the parties deem to be fundamental” found in the same article. The phrase element of contract under Article 1678 indicates consent, capacity object and form of contract but such meaning does not apply to Art 1698. paragraph 1 of title 12 (Art 1979 -1695) also talks about elements of consent to indicate offer and acceptance so from the above two we can understand that “elements” indicates requirements, parts or contents of something. So elements of a contract should mean “content or object of a contract”. 


It is nothing but the content/ objects of the contract that both parties to the contract consider as important or relevant to their relation. In a contract the primary concern of the parties is mainly to keep their obligation to the possible minimum and keep their benefit to the possible maximum. So their primary attention is an object (rights & duties of parties to the contract). Therefore, the element of the contract which the parties deem to be fundamental is the object of the contract. This  is also impliedly included in the heading and contents of Art 1699 which takes about nature or object of contract. Mistake relating to the identity of a contracting party is also fundamental mistake. In short a mistake is fundamental when it related to the object or nature of a contract or identity of the contracting parties. Nature of contract refers to types of contract. For example, a person intended sale contract but in fact entered into service contract, or agency is mistaken for employment contract or usufruct for lease, loan for donation etc.  

E.g.1. Abebe bought a shoe believing that it is Italian product although it is Turkish product.

E.g.2. Shewaye bought a house from Alem for 100,000 dollar although Shewaye thought that the price was indicated in Euro. 

E.g.3. Ashagre employed Shegrawaw as his lawyer believing that Shegrawaw is the one who defended genocide cases in Tanzania before international tribunal but this Shegrawaw is the one who was recently graduated from private college as junior lawyer.  


The law also attempts to indicate what “fundamental mistake” means by telling us non fundamental mistake (Art. 1701). Mistake of the motive of a party or arithmetic mistake are non-fundamental. In contract it is presumed that the immediate and important motive of the parties is to make object of the contract favorable to them. Any other motive is secondary and hence non-fundamental. The direct cause of the contract is presumed to be the economic benefit that the parties derive from the contract. Such motive is clearly observable from offer and acceptance and is expressed as an object. Moreover; motive not expressed to the other party is not binding (Art 1680 (2). So any motive not observable from offer and acceptance is not an element of a contract (Art 1698 cum. 1701)1). 


Arithmetical mistake is taken as non- fundamental mistake because it can be easily corrected (Art 1701(2). This happens when both parties accept the arithmetic mistake. But if the arithmetic mistake is claimed by one party only, it may be fundamental mistake. For example, Abebe signed a check believing that it orders a payment of 50,000 birr although the check indicated birr 500,000 which the payee read and accepted. In this case, the payee accepted the check believing that it carried an order of 500,000 birr but Abebe believed it to be 50,000 birr.


A mistake is arithmetic when amounts, numbers or even provisions are missed or improperly typed due to clerical error regardless of the common intention of the parties expressed in the form of offer and acceptance. For example buyer and seller agreed that the sale price is birr 10,000 but the secretary wrote it to be 1000 and parties sign the contract with out noticing such error. Generally it is editorial error and may also be applied to any other editorial error such as missing  of provisions that indicate rights and obligation of the parties e.g. in a contract of sale, the phrase dealing with place of delivery is missed although the parties consented that it be in Addis Ababa. Such mistake is not an arithmetic mistake. This mistake happens when the contract needs to be made in writing and committed at a stage of translating offer and acceptance in written form and hence it is not defect in consent.

B/ the mistake must be decisive: the mistake is decisive when the mistaken party proves that a rational person in his position would not have entered into such contract had it not been for the mistake (Art 1697). The decisiveness of the mistake should be determined by court taking into account the surrounding circumstances and subjective conditions of the mistaken party. Art 1699 (b) also encourages the court to consider subjective condition of the mistaken party. According to this provision a mistake is decisive where “the mistaken party had undertaken to make a performance substantially greater or to receive a consideration substantially smaller than he intended’.  Art. 1697 also provides subjective criteria requiring him to establish that he would not have entered into the contract had he known the truth. Generally the purpose is searching the intention of the mistaken party since contract is binding only when the person knows his rights and obligation and agrees to be bound. However, knowing intention of such mistaken party is possible only by putting oneself in his position i.e. ‘what would I do as a rational person, had I been in his condition’. Remember the golden rule “Do unto other what you want others do unto you”. 

Good Faith of Mistaken Party (Art.1702) The party mistaken must be ready to be bound by the contract if the other party agrees to be bound as per the intention of the mistaken party. He should not use his mistake as a pretext to be out of the contract.


Reparation (Art.1703) a mistaken party is not without liability. He is accountable for any damage that may be caused to the other party (Art 1703). So invalidation of contract on ground of mistake entails payment of damages. A mistaken party can escape such liability only if he proves that the others party knew or should have known such mistake (Art. 1703) 

Recommendation This writer proposes that Art 1697, 1698 and 1701 be deleted so that the meaning of Art. 1699 & 1700 would be clear. The above three articles over shadows the message of Art 1699 & 1700. Moreover talking about arithmetic mistake is misleading.  

                           

Fraud (Art 1704) Fraud is an intentional act of preparing false information or changing or modifying the content of the subject matter of the contract in a manner that cannot be noticeable by ordinary observation. Fraud does not mean telling untruth or for bearing from telling the truth it rather mean making things or document to give wrong information. Such act is done in order to obtain consent of a person to a contract. The practice of mixing up banana with butter, red ash with pepper, milk with water, Adaa teff with teff from other place are fraudulent act. Fraudulent act may be accompanied by false statement.


A defrauded party can demand invalidation of contract where:  

                     

A/ the fraud led him to commit decisive error (Art 1704(1). Fraud is a way of making a person to have misunderstanding either about the content of the contract or identity of the other contracting or motive of entering into the contract. Here the error or mistake need not be fundamental. It is enough if it is decisive. For example, Alemu told Challa, a broker, that he will buy a house in Awassa if he is employed in Hawassa University. Alemu already applied to Hawassa University for interview and has been waiting response. One day when he opened his post office box he got a letter that was written to him from Hawassa University. The heading of a letter contains “Hawassa University” and emblem and it was signed and stamped by the university authority. By looking at the letter Alemu believed that he got employment into the University. Being happy of such he bought a house for birr 500,000 through the brokerage of Challa. Then he went to the University to apply for duty and learnt that the letter was a fraudulent letter.  

          

B the fraud was committed by the party to the contract or he knew or should have known the fraud or derived undue benefit. 


The defrauded party should also prove that the party himself commits the fraud or knew or should have known the existence of the fraud or he derived undue benefit. E.g. Ethiopian National Bank was once defrauded by gold suppliers. The suppliers painted a ‘balestra’ a golden paint and supplied it as though it was gold. If the bank resells the “balestra” without discovering the fraud, the buyer may claim that the bank should have properly examined the thing. Generally whosoever sells goods under its control (possession) need to know what he / she is possessing. Failure to know is negligence. A person should have known the existence of the fraud means had it not been for his own personal negligence, a reasonable person in his position would have known the fraud.  Moreover, whosoever sells a good in his possession has a duty to warrant against defect in the thing (Art 2287, 2289). So besides the invalidation of the contract, a party may be liable to pay damages.


A person is generally under no duty to disclose all facts in his possession to the other contracting party. Each must protect his own interest unaided by another party. The rule is “buyers beware” (caveat emptor). Keeping silent therefore, is generally not actionable even though it causes damage to the other party. However, as an exception to this rule, a contracting party should reveal fraud whenever possible. 


Even if there is no act of fraud by the party or he had not and should not have known the fraud  a contract may be invalidated if he has got undue advantage on the defrauded party due to the fraud. This is in fact can be sufficiently proved if the decisiveness of the mistake (fraud) is proved.


N.B A party who is unable to prove Art.1704 may resort to proving existence of mistake although practically proving mistake is more stringent than fraud. Notice that Amharic version and English version of Art 1704 (2) seems to convey different meaning but by final analysis they convey the same meaning. 


E.g.1 Abebe sold a T-shirt to Ayele. But the package of the T-shirt was damaged and Abebe repacked the T-shirt and sold it as if its original pack was untouched. 


E.g.2 Due to problems in shipping, the paint of car was damaged, and the car dealer painted the damaged part of the car. So that it was not possible to distinguish the repainted car from others. Abebe bought one of these cars believing that the painting was original but he later on discovered that a certain part of the body of the car had been repainted. 


E.g.3 Shaka bought shoes, which has trade mark of Anbesa shoe Factory and resold it for the same price to Shemsu. Shemsu latter on discovered that the person who sold the shoe to Shaka fraudulently use trade mark of Anbesa shoe factory for a shoe he produced at home. 


E.g.4 Zelalem parked his second hand automobile in a sales shop of Moenco. Azerefegn bought such car from sales shop believing that it was first-hand but Moenco’s sales person or Moenco knows the fact and connived with Zelalem.

                          

False statement (Art 1705) false statements is untrue statement made

               A/ knowingly (intentionally) or

                B/ with out give being indifferent whether it be true or false (reckless) or

                 C/ negligently (Art 1705) 


Misleading conducts or silence may also amount to false statement (Art 1705(2). For example, if a buyer of Bajaj asks a seller whether or not the fuel consumption of the Bajaj is more that 40 km per liter and the seller remains silent, such may be a false statement. In principle telling a false statement cannot lead to invalidation of contract. A party can lie as much as possible unless his morality, religion and reputation matters him. In a free market economy it is believed that neither party owes any duty regarding voluntary information to other nor is he entitled to rely on the other. Each party must study the situation, examine the subject matter of the contract, assess the general current and future market possibilities, and rely on his own source of information and judgment. He can take advice consult experts, buy information from third parties. The only general limitation is that no one can resort to fraud. In Ethiopia also there is an Amharic saying a trader never makes profit unless he lies. So a contracting party is free to lie about the thing he sells or service he renders. He is not accountable as far as the thing or service is what it appears to be. For example. a buyer bought CD player that cannot be repaired once damaged. But the seller told him that the CD player is repairable.


However: false statement can be a ground for invalidation of contract where 

                   

A/ there is a special relationship between the liar contracting party and the mistaken party. Here the special relation should be a legally recognized relation which creates duty to trust one another. But the duty to trust may be either legal or moral. This is because, firstly it is very difficult to identify a relationship that gives “rise to a special confidence and commanding particular loyalty”. Secondly, if we go beyond legal relationship it is difficult to prove the existence of the claimed relation. For example if we take friendship, it may be difficult to claim the existence of loyalty on matters of economic interest between friends. Moreover, it is difficult to prove whether or not the disputants were friends or not since there is not standard definition for friendship. 

Thirdly, Art, 1706 (1) itself provides about “special confidence “and “particular loyalty” and such “special confidence” or special loyalty” is expected if there is “special or particular” relationship; such special or particular relation should not be left to the parties or witnesses or even courts so that subjectivity would be minimized. Example of legally recognized special relationship is husband-wife, patient-doctor client-lawyer citizen-government. For example if any of the municipalities in Ethiopia lies to those to who buy condominiums the purchaser may invalidate the contract because of false statement.

                  

B) Such special relation ship led the mistaken party to believe the statements of the other party. False statement made by third party to the contract can not be the cause of invalidation of contract.

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