Thursday, March 25, 2021

Ethiopian Contract Law- Form of Contracts

 

Form of Contracts (Art 1719 – 1730)

Definition 

It is the way in which the content of the contract exists or appears to others. It answers the question as to how third parties such as court could know the agreement of parties. Therefore, contract may exist either in written form or oral form. When contract is in written form, a court or third parties know the agreement by reading a paper on which it was written (Art 2003). Otherwise, the court can know the agreement of parties from oral testimony of the parties themselves or witnesses (Art 2002).

In case offer and acceptance was given orally, by conduct or by sign and not reduced into writing the contract is said to be made orally since it is to be proved by oral witnesses. Moreover, when part of the agreement is written while the remaining is unwritten, such contract should be taken as oral form and the written part could only be used as corroborative evidence to oral testimony. 

        

Freedom of Form (Art 1719)


Most non-lawyers believe that for a contract to be legally binding, it must be made in writing and signed at least by the parties to contract. But these people forget that they have entered into so many contracts in their life without following written forms. However, the law gives freedom to the parties to choose either written or form. So contract can be valid if consent, object and capacity requirements are fulfilled. 


Limitation on Freedom of Form Art.1719 (2, 3) 


Freedom of form is not absolute. The freedom may be limited by law or the offeror. An offerer has a freedom to determine the form of acceptance (Art 1681 (2). Similarly he can propose written form. If the written form is accepted then parties agree to limit their freedom of form (Art. 1719(3). If the written form is rejected then the offer itself is rejected (Art 1694). Limitation of freedom of form means denying the parties the option to make their contract orally. 


The reason for such limitation may be;


Evidentiary value: Sometimes we may feel insecure when we make contracts orally especially when the contract involves considerable property interest. The insecurity is not unreasonable since we may be in a very difficult position to get witness to prove the contract if a person with whom we enter into contract denies the contract. The insecurity is further exacerbated by high mobility of people. This creates shortage of information to properly know the personality of the individual we are contracting with. The disintegration of social life also contributes to our insecurity since there is less possibility to use public opinion to punish the people who dishonor his words. So to reduce such insecurity people may prefer to make their contract in written form. 


Recalling content of contract: There is an Amharic saying “things in mind can be forgotten; things in writing can be recalled.” unM ÁK Ã[dM uîOõ ÁK Á¨dM. This means if contract is in oral form, there is high possibility that its content be forgotten both by parties and witnesses specially when the content of a contract is a complex one and remains effective for a relatively longer period. For example, contract of marriage is mainly justified on this basis since spouse dishonor his words rarely but most of the time he/she forgets the promise he/she has made to a partner before marriage. Contract of marriage made in writing therefore, helps spouses to recall their lovely promises.


Indication of intention to create legal relation: If a contract is made in writing, there remains little doubt that there was no intention to be bound. If a contract is to be made in writing, a party thinks twice before he gives his final consent to be bound. Firstly, the person thinks to give consent and secondly he thinks when he is required to sign the written document. Between the consent and signature, there is a time gap. Ouring such time gap, whatever its length, the person can get a chance to thoroughly think and decide to change or affirm his previous decision. Moreover, when one party proposes written form the other party may understand that the contract is being taken seriously by proposer of the form. Generally, written form makes parties to be conscious of the effect of the contract. So, written form may be taken as an indication of intention to create legal relation. 


Contracts made in Written Form (Art 1721 – 1726) 


The following contract shall be made in writing.         


A/ contracts required by the law to be made in writing


Some of the contracts that the law expressly requires to be made in writing are: 


Contract relating to immovable: - all contracts that affect a right on an immovable except lease must be made in writing. Therefore, sale, usufruct, servitude, mortgage, antichresis partition, compromise and even arbitration agreement concerning house or land should be made in writing. For example, if heirs partition an immovable among themselves, such partition agreement must be made in writing. Moreover; if disputants on an immovable want to refer such dispute to arbitrations, they have to make their agreement in writing (Art 3326). Notice, however; that lease or rent relating to immovable need not be made in writing. In a case Rented Houses Administration Agency vs.Sosina Asfaw in a file No15992 presented on Hamle 19, 1997 to it the Federal Supreme Court Cassation Division ruled that renting house need not be made in writing. The fact of this case was that the appellant sued the respondent in Federal First Instance Court for birr 234,576.57 of house rent arrears. The respondent argued before that court that the house rent contract was void since it was not made in writing. The court accepted the argument and the appellant appealed Federal High Court where the appeal was rejected. Then the appellant went for cassation and finally got a decision that house rent contract need not be made in writing. 


Contract with public administration (Art 1724): Any contract to which a government agency is a party, including any type of employment contract, should be made in writing. In public administration, officials do not stay in office indefinitely rather they may leave their office by election, removal or resignation. Once they leave their office it is difficult to ascertain the content of the contract entered into during their stay in office but that continues to be effective even after they leave their office. Moreover, oral contract opens a room for corruption since keeping information is difficult. 

Contract of guarantee (Art 1725 (a) 

Contract of insurance (Art 1725 (b)

Contract of marriage 

Partnership contract 

Pledge for a loan exceeding 500 birr (Art 2828 (2) 

Sale and mortgage of business (Art 152, 177 (2) comm. code)  

Promise of sale and preemptions (Art 1412) 

Agreement prohibiting assignment or attachment of a certain this (Art 1430) 


B/ contracts required to be made in writing by the parties 


Even if the law has not expressly provided written form as a mandatory requirement for validity of contract, parties may themselves provide written form. Once the parties agree to make their contract in writing, then contract will not be completed until such form is fulfilled. (Art 1726). No party can require the performance of the contract until it is made in writing. Even if the parties have begun to perform the contract, the court does not help them to have the performance completed unless they comply with their prior agreement to make the contract in writing. This means parties cannot change their prior agreement impliedly by performing the contract. This is probably because the prior agreement has been made expressly either in writing or orally and parties should not be presumed to have an intention to extinguish such express agreement by conduct (implied agreement). In short express agreements cannot be changed by implied agreement. 


However, parties can change any express agreement by another express agreement. So, any agreement to be a contract in writing may be changed in a manner it was made. If the agreement was made in writing its change should also be made in writing (Art. 1722). Similarly express oral agreement should also be changed by another express oral agreement or written agreement. Therefore, if one of the parties proves that they have expressly changed their agreement to make their contract in writing, they should not be required to stick to their original agreement and they can make contract in oral form. For example, C and D agreed that C will prepare a teaching material on Ethiopian constitutional law and D pays birr 30,000 upon completion of the work and they further agreed that the content of the contract shall be written down in detail on April 20. On April 25 C and D meet and agreed that the contract is effective without any need of written form. 


C. Preliminary contract (Art 1721)


A contract that intends to lead to another contract shall be made in writing if the contract to which it leads is required to be made in writing either by the law or the parties. The best example is agency contract. If the agent’s power is to enter into a contract in writing he should be conferred with such power in writing (Art 2200(1). The other example, provided by Rene David and G.Krzeczunowicz (David .p. 28, G.Krzeczunowicz P.73.) is promise of sale of a house which is also governed under Art 1412. The other possible contract the writers are able to imagine is an agreement to enter into compromise provided the parties agree to make the compromise in writing. However, an agreement to enter into compromise is not binding since compromise itself is a contract and a party may refuse to make a compromise although he may claim that he is ready for compromise (1879 (1) cum. 3307). If Art. 1721 was intended to cover case of agency and promise of sale, it becomes redundant because agency and promise of sale are expressly stated under special provisions to be made in writing (see Art 2200 (2) 1412). So, the relevance of Art.1721 remains obscure. 


D/ Variation of contract made in writing (Art 1722) 


Variation of contract is a contract itself (Art. 1675). So, if such contract relates to contracts indicated under Art. 1723, 1724 and 1725, it should necessarily be made in writing.  However, in case of a contract made in writing by parties’ agreement, parties and courts may feel that such contract can be varied by any form. To guard against such possible interpretation, the law expressly provides that variation of a contract made in writing shall be made in writing. For example, C and D entered into lease contract in writing. In their contract they agreed that the contract begins to be effective from April 20 and any party who fail to meet his obligation shall pay birr 10,000 as penalty after the contract was concluded. C made a telephone call to D and proposed that effective date be on May 20 and D accepted the variation. No variation is made. 


N.B The law provides form for creation and variation of a contract but it is silent about form for extinguishing a contract. The drafter also expressly states that provisions dealing with form of contract do not include extinction of contract (David.p.28). He rather claims that the formality requirements of extinction of contract are provided under chapter dealing extinction of obligation (David. 28). Here the drafter must have been mistaken since the above stated chapter has nothing to do with formal requirements (forms of extinction of contract) rather it governs causes of extinction of contract (Art 1807). Even in case of remission of debt and novation (contractual causes of extinction of contract) the law never provides the form of remission or/and novation of contractual debt. What is provided is that remission and novation are contractual causes of extinction of contract (Art. 1825, 1226). The same mistake must have also been committed by G.Krzeczunowicz since he also claims that extinction is covered under the chapter referred to by David. 

However, these writers are of the opinion that when parties intend to extinguish contractual obligation that exists between them, they shall make the extinguishing contract in special form if the contract to be extinguished was made in special form. This is because;


Extinction of contract is a contract itself- When we say contract we mean either creation or variation or extinction of obligation. So, when the law provides that contract with government be made in writing, it includes extinction since extinction is a contract. The same logic, therefore, applies to all other contracts which the law requires to be made in writing. For example, C and D entered into a sale contract the sale contract provides that C seller shall sell his house to D and D shall pay birr 20,000. C and D can extinguish such contract if they want since everybody has a freedom to contract (extinguishing, creating, or variation of obligation). However, they have to make their contract in writing since contracts relating to sale of house should be made in writing. 


Intention to create legal relation can be clear. If parties agree to extinguish written contract orally and the other party later on claims that he did not intend the agreement to create legal effect, his argument may be acceptable. As we stated in our discussion on justification for written form, in case of written form, a person thinks twice before he binds himself. If he thinks twice to create an obligation he should also be given the same chance to extinguish such obligation. That is why Art. 1726 provides that agreement to make a contract in writing shall not be changed by implied declaration of consent (conduct). So a person should be presumed to have changed his previous stand only when he uses the same way of declaration of intention as he used earlier. 


Probatory value of written instrument (Art. 2005) A written instrument is a conclusive evidence to prove obligation. It cannot be challenged by witnesses except by the oath of the defendant (Art. 2006 (1). Therefore, it is very difficulty to prove that a written contract has been extinguished by a later oral contract. This means a remission or novation of contractual obligation should be made in writing if the obligation to be remitted or novated arose from written contract.

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