Tuesday, March 16, 2021

Ethiopian Contract Law- Freedom of Contract

 As stated under Art 1679, parties are the ones who define the content of their contract. They are free to determine what each party is bound to perform, where and when to perform and may also specify penalty for non performance. They are free to enter into any type of obligation, obligation to do “not to do” or “to give” (Art 1712(1).

Obligation “to give” or “not to do” is clear enough; one can clearly know what the other party gives or retrains from doing. Subjectivity of a party to a contract is less visible. But in case of obligation to do the personal nature of the person who agrees to do” matter very much on the benefit that the other party derives from the contract. For example, A agreed not to fence” his land (not to do”) and B agrees to sell his cow and C agrees to teach law of contract. In case of “not to do” or “to give” whosoever and in whatsoever he performs the contract, the benefit of the other party is the same.  But in case of obligation to do the qualification and the diligence of the doer has great effect on the quality of the work. So in case of obligation “to do” parties should determine the criteria of evaluating the quality of the work done (Art 1712 (2). 

However; parties may fail to specify all the possible contents of the contract. It is practically impossible to imagine all the possible disputes that may arise between parties. The best way to fill such gaps is to follow the golden rule of “do unto others what you want others do unto you”. (Art 1713). Accordingly; parties are presumed to have agreed to benefit from the contract fairly and equitably. So for disputes that are not clearly settled in the contract, court could refer to good faith, equity and custom and law. For example, in a certain case, a College employed Mr. X as a mathematics teacher. Later the college wants to make Mr. X an academic dean. When the instructor refused to take the position the college dismissed him and the instructor instituted court action; the college was defending on the ground that it is customary for instructor to take position in academic administration and won the case.

Generally parties should expressly and clearly define content of contract. On any matter which parties did not expressly agree, they are presumed to have left the matter to be governed by law, custom, equity and good faith.  So, in order to settle disputes court should first refer to contractual provision and if they are found to be insufficient, then to legal provisions and if still the matter is not resolved, to customs and at the end good faith and equity be applied.

However; law, custom, equity and good faith merely supplements the contract. If there is no contract, law, custom, equity cannot by themselves create contract (Art 1704 (1). Therefore, parties must at least indicate the main obligation. One must be able to understand the object of the contract by referring to the contract itself without referring to law custom, equity or good faith (Art 1714(2) i.e. before going to interpret the contract, the court should be able to speak of at least the obligation of one parties by referring to the agreement of the parties only. For example, in a sale contract, the court should at least know obligation of a seller and then it can refer to the law to determine its price (See Art 2305-2307). So contract is interpreted only if it is sufficiently clear so that such sufficiency be completed. 


Limitations to Freedom of Contract However, parties’ freedom of contract is not absolute (Art 1711). No freedom on earth is absolute. Human being is a social animal where the absolute freedom of one necessarily violates freedom of another. A contractual freedom is limited to attain social justice, peace and tranquility. The major causes for limitation of freedom of contract are:

Social protection:  Freedom of contract at the end of 19th century was seen as a centre of the exploitation of the proletariat. The labor force was large due to rural-urban migration and the capitalists were few. There was severe exploitation of the poor laborer by big capitalist.  Such exploitation led to the development of Marxist theory which in turn led to the establishment of international labor organization in 1919. Moreover; exploitation of the tenants by the land owners was also the centre of discussion. So laws were begun to be issue prohibiting certain types of contract and imposing terms into contract. This process also continued right through twentieth century. Thus there has developed a whole network of institutions designed to act as a safety net for individuals, to protect them from extremes of commercial and industrial life. Such system includes national insurance, National Health Service statutory recognition of trade unions, and Compensation scheme for those made redundant and a whole battery of legislation to protect tenant from the excess of land lords. Some communist countries even went to the extent of reducing freedom of contract to nil. For example, the Ethiopian revolution of 1974 brought about nationalization of private properties and land there by in effect abolition freedom of contract. Freedom of contract is less relevant without freedom of property.

Consumer protection: There has also been recognition of the danger of concentration of economic power. Hence, restrictions on the growth of monopoly power such as market segmentation and quota has begun to be prohibited. Moreover, the mass production of industrial revolution brought about freedom of choice and goods of complexity which could not be known to an ordinary person. So legislators began to impose conditions on the parties to contract. Specially, sellers of goods were required to comply with certain basic standards.

Public order or morality: - under the guise of freedom of contract parties are not allowed to go against the public order and morality.

Generally, under Ethiopian law; freedom of contract is limited by the following:

Clarity of objects (Art 1714) as stated in our earlier discussion; the object of a contract should be sufficiently clear; otherwise the court concludes as though parties did not exercise freedom of contract. Clarity of object is therefore; not limitation of freedom of contract rather it is parties failure to exercise freedom of contract.

Possibility of object (Art 1715). Parties’ freedom does not allow them to bind themselves to perform humanly impossible things. The law wants to protect the public from superstitious believe. For example, if a person agrees to raise a dead body; to duplicate money by mystery, to bring audio visual image of dead body; to make a person very rich etc the object of the contract is impossible. Impossible obligation is the obligation whose performance is beyond the nature of human being. For example, a certain Ethiopian peasant may agree to cure HIV/AIDS. Such is currently impossible for human being. However, if the peasant agrees to invent HIV/AIDS drug although such is relatively difficult for Ethiopian peasant; inventing a drug is something within the limit of human nature. 

Legality of the object (Art 1716(1) no person can be bound by contract to violate any law of the country since such is contradiction in terms. For example, if a person is forbidden to commit abduction, it is illogical to allow a person to bind himself by a contract to abduct someone or help another person in committing abduction. So nobody can bind himself to violate criminal law of the country. 

N.B restriction and prohibitions indicated under Art 1711 differ from legality of object. Restrictions and prohibition indicate the concept of social and customer protection where as legality indicates concept of public order. Restrictions and prohibitions are mainly found in labor law and trade practice law. They are also found in commercial code and civil code. Limitation on exercise of constitutional rights (Art.9 (2), 12(3), 16(3), 17, and18), excluding extra contractual liability (Art, 2147), revocation of authority (Art.2183), commissoria lex (Art.2851, 3060), issuer’s guarantee of payment of negotiable instrument (Art.743 comm. code) are some of the examples of restrictions and prohibitions. Restrictions and prohibitions are intended to protect the individual contracting party whereas legality is intended to protect the public. So legality of the object is determined by referring to criminal law whereas restrictions and prohibitions are to be found in the private law area.

d)  Morality of Object (Art.1716 (1) Society wants to perpetuate itself. For the society to perpetuate, individual members of the society have to have certain standard of conduct generally known as morality. Otherwise, individuals consume one another thereby bringing an end to the society. As a means of self defense the society punishes those who violate morality. Law is the part of morality that is entrusted by the society for its enforcement. The remaining part of morality is to be enforced by the society itself by means of public opinion. However; even though the state does not have a duty to enforce such morality it should refrain from indirectly assisting the violation of morality. Therefore any immoral obligation cannot be enforced by court or executive (Art.1716 (1).  

The obligation may not be contrary to criminal but it may be contrary to morality. For example, if a man agrees to pay money to get sexual gratification from a woman such contract is not illegal but immoral. So the man or the woman cannot get state assistance to have the contract performed.

E.g. Abebe, a resident of Addis Ababa, agreed with Belete that Abebe eats donkey’s meat in the presence of friends and Belete agrees to pay 5000 birr. Abebe did what he agreed to do but Belete refused to pay and Abebe begs the court that Belete be forced to pay the agreed money.

e) Motives of the Parties. Parties are expected to know content of their contract only (Art 1679). A party is not bound by restriction or reservation of the other party. If a party cannot be bound by restrictions and reservations of another party, equally he should not benefit from such restrictions and reservations.  Moreover; motives are mostly hidden agenda of parties and knowing these motives is very difficult. In such situation allowing a part to avoid his obligation is therefore, allowing him to interfere in the private life of another contracting party in search of information and evidence necessary to prove such motive. Furthermore; motive is a mental element and everybody has a freedom of thought. Freedom of thought is the only absolute constitutional right. Still further, there is no clear indication that the motive will be carried on into practice; there is high possibility that the person may himself drop his bad motive. Even though  we may argue that entering into a contract is a preparatory act, preparatory act is a crime only  in a exceptional cases and in such case the act (obligation) will be illegal since it amounts to assisting the commission of the crime(the preparatory act). Therefore motivate of the parties are irrelevant to determine the legality or morality of the object (Art 1717).

E.g.1 Cain is butter dealer. He bought many kilograms of banana from Enoch and agreed that delivery and payment be on April 20, Enoch came to know that Cain wanted the bananas to mix it up with butter and sell it to the public. Enoch cannot refuse to perform the contract.

E.g.2 Saul agreed to lease his houses to Satnael for birr 1200 per month. They agreed that the contract remain effective for 12 months. Saul later on came to know that Satnael has planned to use the house as a head quarter for terrorist activities in East Africa. Saul cannot claim the invalidation of contract. The only option he has is to inform the case to police. 

However; if the illegal or immoral motives of a party is understandable from the content of the contract itself i.e., the illegal criminal motive is indicated as one of the content of the contract, such contract may not be enforced although it has nothing to do with the objects of contract. For example, the illegal or immoral motives of a party may be indicated in the introductory (preamble) part of the contract or it may even be mentioned in the main body without having binding nature. 

E.g.1 “Me, Abebe, agree to lend birr 10,000 for Alebachew. Incidentally I wish him   the best in his business so that he may appreciate my effort to assist him. I know that contraband business is a risky business. May God help him.”   


“Me Alebachew, appreciate the loan. May God help me to make favor to Ato Abebe”. 

Notice that Art 1718 (1) never talks about invalidation. The courts never invalidate a contract even if the illegal or immoral motive is clear from the contract itself. What the court should rather do is to refuse to enforce it. The court neither enforces nor invalidates the contract, the court becomes neutral towards the contract, and court rejects both claims for invalidation and enforcements of the contract. Courts refusal to invalidate does have legal effect since there would not be reinstatement so the court never touchs what has already been performed and never help the completion of performance (Art. 1815).      

Art 1718 (1) applies to both written and oral contracts. In the case of oral contract, the content of contract which indicates the illegal/immoral motive of a party is proved from words of a witness brought either by the plaintiff or defendant. For example a plaintiff witness may testify as follows. “I know that the defendant agreed to lend birr 20,000 which the plaintiff intended to use as down payable to parents of children who he intended to take to Addis Ababa.”  Moreover; the admission of illegal or immoral motives as a content of the contract by the party claiming performance can also be indication of the content.  

Finally, if the immorality/illegality of motive is not included in the content of contract such immoral illegal motives cannot be proved by any other means except by a written document presented by party claiming performance. A defendant or even the plaintiff cannot employ oral witness to prove motive that has not been content of the contract. In oral contract if the immoral/ illegal motives was known to both parties at the time of conclusion of contract we can say that it was made content of a contract, otherwise it was not a content of the contract. It is less likely for a court to refuse performance on the basis of motive which was not made content of a contract since such motive is to be proved by document presented by a party claiming performance. In normal circumstances the party claiming performance (plaintiff) cannot prove the existence of illegal motive since such is defeating him. More surprisingly, he himself has to prove by written document there by reducing the possibility of obtaining evidence from the plaintiff. Although there may be a possibly that hostile witnesses may be presented by plaintiff but there is little possibility for plaintiff to present hostile documentary evidences. Finally the writers are of the opinion that Art 1716 (2) seems to overlap with Art 1718(1). This might be because Art 1718(2) was introduced by drafting commission with out the knowledge of the drafter and the commission might have not noticed the relationship between the two articles. Let us try to see the similarity of the two articles by examining examples given by G. Krzeczunowicz and Rene David. 

Eg.1 A agrees to pay birr 5000 for Melaku if he resigns from the judgeship which he is currently occupying. Here; we can clearly see the motive of the parties i.e. using one’s own public position for financial gain and removing peoples from office by using one’s own financial power. This motive is illegal or at least immoral.


Eg.2 A parent agrees to pay birr 25000 so that the kidnapper releases a child. Here also the kidnapper’s motive of using his illegal act as a means of earning money is clear from the contract. 

Eg.3 a reward offered for recovery of stolen good by the thief and accomplice is also the same. 

E.g.4 A undertakes to pay B a sum of money in order that B not commits a crime. Here also the motive of B is to get money by threatening A to violate a law. 

Finally, the writers are of the opinion that any threat that does not fulfill the criteria of duress under Art. 1706 may be evaluated against the criteria of 1716 (2). However, Art 1706 is about defect in consent whereby a person scarifies his freedom not to contract; he was bound by force to enter into a contract. Such a person is a reasonable person and the society never condemns him for doing so. He may even be condemned if he refused to enter into a contract and as a result the threatened harm materializes. For example, what if a person leaves his daughter to death for not signing a check of 10,000 for the murderers? However, a person under Art 1716(2) has another alternative to save his right. A citizen has a moral duty not to cooperate with wrong doer and must even fight them by using all possible legal mechanism. Failure to do so may amount to immorality. Even more doing any act that may encourage the wrong doers to continue with their act is immoral. For example, a person should not negotiate with thief to get stolen property back. If a person does this it is very difficult to argue that he was bound to enter in to contract. Rather, such a person is selfish and always gives priority to his own short sighted interest without giving any attention to the public interest. Hence under Art 1716(2) there is no defect in consent but the motive of one or both of the parties is illegal/ immoral. Generally, Art.1716 (2) applies to cases where one or both of the parties are intending to benefit from their own immoral or illegal act. For example, A, friend of B agrees to sell his house to B for birr 200.00 which is by 30% less than its actual price so that B would not rape the daughter of D who burnt his (B) house.  D’S daughter was under B’s custody.   

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