Monday, March 29, 2021

Ethiopian Law of Contract- Judicial Variation of Contract

  Judicial Variation of Contract

As indicated above, court may be delegated to vary a contract. The court is normally delegated such power when fundamental change in circumstance affects the object of the contract (Art.1766-1770). However; court may also vary a contract where there is undue influence or lesion that never leads to invalidation of the contract (see G.Krzeczunowicz, 1983, p111). Accordingly; in the following court may modify

contract between persons having Special Relation:

 

Here the phrase special relationship must refer to relations that are recognized by the law such as spouses, relation by consanguinity and affinity, employer-employee, subordinate, lawyer-client, doctor-patient and agent principal, partners in Ordinary Partnership. (See Tilahun, 1989, p. 141). Even it may be argued that Art. 1766 should in practice be limited to family relation only since it is only in family relation that parties do not want to think seriously about the obligation they enter into. Family members normally live by financially supporting each other particularly in countries like Ethiopia.  In other types of relation contract is normally entered into by arms length there is no possibility of financially supporting each other: no party can financially rely on opposite party. So cases other than family relations should either fail under defect in consent (undue influence, lesion) or under special provisions of the law (agency, Art.2219 (2), intellectual work, Art.2635 e.t.c). In short Art. 1766 applies when one side of the obligation become onerous than he foresaw due to change in circumstances. There is a Cassation decision that modified lawyer’s service fee. In Aster Araya vs. Girma Wodajo case presented to Federal Supreme Court Cassation Division on Hamle 29, 1997, File No. 17191 the court ruled that although courts do not have the power to declare that a contract is non-binding it can reduce amount of fees to be paid.

 

 

 

 

Ø Contract with public administration

 

A government has legislative and policy making power that may enable it to change the balance of contract in its own favor. Especially in countries like Ethiopia which follow developmental state policy, the government has greater role to manipulate the market. So had it been for Art. 1767 entering into a contract would have been a very risky transaction. So now the government has to either refrain from taking measure that make the obligation of debtor more onerous or must cover the costs of its measure on the debtor.

 

E.g1 Aba Dagnew Construction P.L.C. entered into a construction contract with Ethiopian Road Authority to construct 180 km asphalt road for birr 360, 000,000(three hundred sixty million). At the time the contract was concluded asphalt used to be imported custom duty free but few months after twenty five percent custom duty taxes was imposed.

 

E.g2 Aba Tatek Construction P.L.C. and Addis Ababa City Administration entered into a construction contract in 2006 whereby Aba Tatek Construction P.L.C. agreed to construct ten thousand condominium houses at a total cost of birr 1,000,000,000(one billion).The construction was planned to be completed until October 2010. But in 2007 Ethiopian National Bank changed its Monetary Policy and devalued birr by 500%. As a result of such devolution cost of labor and construction material increased by 600%.

 

Notice that government includes any state agency both in the federal and state level having the authority to make policy or law. Such new policy or new law should not have been foreseen at the time of conclusion of contract. Fuel price revision in Ethiopia, for example, is something expected after every three months.

 

 

 

 

Ø Partial Impossibly of Performance

 

If obligation was partially impossible at the time of conclusion of a contract, the appropriate governing provision is Art.1813. Thus Art.1768 applies if impossibility occurs after the conclusion of contract and if such impossibility never leads to breach of fundamental provisions of the contract as indicated under Art.1785. For example in a contract of sale of 200 quintals of coffee if hundred of them are damaged the court may require the buyer to receive the remaining hundred and make proportionate payment. Notice that Art. 1748 is conformity with Art. 1768. Likewise the application of Art.1768 should be limited to fungible things so that it should not contradict with Art.1746.

 

Ø Time of Performance

 

Court may also extend time of performance for a maximum period of six month (Art.1770). This extension has to be given when contract does not exclude the court from giving grace period. Moreover; the court must make sure that such extension of time causes little influence on the creditor and such influence is financial compensable. In other words the court must conclude that cancellation of the contract and giving of grace period will have equivalent consequence on the creditor. The court must also make sure that there is high possibility that the debtor will perform his obligation with in grace period.

 

Notice that the creditor may deny the debtor to benefit from grace period by unilaterally canceling the contract. (See Art 1774, 1786, 1787)

 

The prominent example is land lease contract between government and an investor. The investor has to begin construction within certain period and complete it within specified period. Such investor may benefit from Art. 1770.

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