Thursday, March 25, 2021

Ethiopian Contract Law- Effects of form of Contracts


Effects of form (Art. 1720) 

When the parties or the law requires the contract to be made in writing, failure to comply with such requirement make the contract a mere draft (Art. 1720). The contract never exists until the formality requirement is fulfilled. As can be understood from Art.1726 and the phrase “a mere draft” (Art. 1720(1), the parties can complete the contract at any time by putting down its content in writing. But until such formality is fulfilled, no party can claim the enforcement of the contract.

However, failure to pay stamp duty or registration fee never affects the effect of the contract (Art. 1720(1). The person can pay such stamp duty or registration fee at any time and claim the enforcement of the court. Paying stamp duty or registration fee is as easy as fueling a car and a car which does not have any mechanical problem can immediately give the service intended once fueled. So form is like a mechanical problem of a car that needs the assistance of mechanic but stump duty and registration fee is like a fuel that needs money only. 

Some contracts need to be registered. Such registration is normally intended to make third parties to be aware of the existence of such contract. Registration may also be intended to have deposited documents in a relevant place. Therefore, such registration does not have any relationship with form of the contract. That means even if the legal requirement of registration has not been fulfilled, the contract can still be enforced between parties. Registration can affect the validity of contract only when the law expressly states that failure to register the contract shall make the contract non-existent (Art.1720 (3). For example, although Art 1723 provides that contract relating to immovable be registered, it does not state that failure to register shall make the contract non-existence. Therefore, according to Art.1720 (3), contract relating to immovable remains valid even if the registration requirement is not fulfilled. This is further clarified under Art 2877 and 2878 which govern sale of immovable. The two provisions provide that failure to make the contract in writing makes the contract non existence but failures to register the contract does not. The same logic applies for contract of marriage and contract with government.

However, it is expressly provided that mortgage contract and partnership agreement do not produce any legal effect if they are not registered (Art 3052 and art 177(2), Art 222 commercial code).

N.B. when the contract is to be made in writing it will not be binding until the written form is fulfilled. This means, if contract is to be made in written form, offer and acceptance do not have legal effect. One can withdraw one’s consent at any time. However, the person who arbitrarily abandons his offer or acceptance may be extra contractually liable (Art. 2055).


Written form (Art 1727-1729)

Although in our discussions on page 46 we said that form of  contract is either written form or oral form, the law simply states “special form” without defining what it mean by  special form(see Art 1719 (2,3) 1720  1726  1721-1725). More over; there are forms other than written form. Let us see the definition given by the law to a written form so that we may be able to guess other forms that are imagined by the law.

A contract is said to be in writing where (Art. 1727)

The content of a contract is written i.e. the content is readable. 

The writing is made on a special form. Special form means any pure paper that is intended for a specific contract only. Therefore; if a paper contains another contract or other things such paper is not a special document. Moreover; writing on electronics does not fulfill the requirement of special document.

Parties to the contract sign the special document. Parties sign by putting hand written mark on the special document (Art 1728). Here, two things are interesting firstly the law does not allow the use of mechanical process such as stamp; secondly, thumb mark never binds unless it is made in the presence of notary, registrar or  a judge acting in discharge of his duty( Art-1728 (2)

At least two persons sign the special document as witnesses.

The witnesses should have contractual capacity (Art.1729 (1) (Here Krzeczunowicz claims that Art. 1729 and 1730 are redundant (see G. Krzeczunowicz P. 77-78). Although this writer agrees that art 1729 (2), and 1730 are superfluous Art  1729(1) is very much relevant and gives guidelines whether or not minor and judicially interdicted persons can sign juridical acts as a witness. Art 199 (3) forbids minors from entering in to juridical act that binds them. Becoming a witness does not mean performing juridical act since witness cannot ever be bound by mere fact of signing as a witness (Art 1730 (2).

In short, written form for Ethiopian contract law means any special document containing content of a contract signed by parties to the contract and at least two witnesses. 

2.4.6 Other Special Forms

Let us now examine other types of special forms. It is true that there are special forms other than written forms. The question is What are these other special forms? These other special forms should contain contents of the contract in a readable manner. But the thing on which the readable content is found may be a special document, scrape of paper, electronics or any other thing. Moreover; both parties may sign or only one of them sign or none of them may sign. There is no need of witness to sign. The best example of such special forms is commercial instruments. Signing or issuing a commercial instrument is concluding a contract. Such contract should be made in a special form (see Art 735, 748, 761, 767 of commercial code for example). Parties may also agree that the content of contract be concluded when both parties write a letter signed and sealed. They may also agree to reduce their contract in writing and signed by them without any need of witness. They may also determine the number or identity of witnesses. Therefore; when the parties agree to make their contract in special form; they should clearly define what that special form means.

N.B This writer is of opinion that the controversy that has arisen in Ethiopian courts on form of insurance contract is because of confusion between written form and other special form. The civil code provides that insurance contract shall be made in written form (Art. 1725 (b) and has to fulfill the requirement of Art 1727. But the commercial code simply requires that the insurance contract be supported by insurance policy. So the commercial code refers to special forms other than written form. For the commercial code, it is enough if the content of the contract is written down without any need of signature of witnesses. Partnership agreement may also face the same challenge as insurance. Contract of partnership agreements (memorandum of association, articles of association) shall be made in writing (Art.1725(c) and commercial code Art 214). One may argue that partnership agreement shall, therefore; be attested by witnesses. But such argument is contrary to practice and may also be unreasonable imposition. It is better to conclude that partnerships agreement is to be made by other special forms which could be valid if signed by parties to the contract only. Generally, the civil code dealing with form of contract shall be reviewed and distinction should be made between written form and other special forms.

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