Saturday, March 27, 2021

Performances of Contracts


Performances of Contracts (Art. 1740-1762) 

Performance of contract means fulfilling one’s own obligation as agreed. If the obligation is to “do”, doing what was provided in the contract exactly in the same way as provided, if the obligation is “not to do” forbearing from doing what is forbidden by contract and if the obligation is to “give” delivering the thing with its accessories on the agreed date and place is called performance of a contract.

So the major questions during performance are ‘Who perform contract’? To whom should contract be performed? What should be performed, When and where should it be performed? Art 1740-1762 can be taken as interpretation of a contract by legislator since these provisions are supplementary or complementary to parties’ agreement.

Who Performs Contract (Art. 1740) 

The contract can be performed by the debtor, his agent or by person authorized by court or law (Art. 1740(2). The persons authorized by law are tutors, liquidators, trustees and person authorized by court is either a curator or an interested creditor who wants to save the rights of the debtor by performing his obligation. However; the law never mention about performance of a contract by a third party not authorized by debtor, court or law. 

However; we can easily argue that if the creditor accepts the payment, the debtor has no right to stop third party from performing the obligation since the creditor has a right to assign his right to a third party without the consent of a debtor (Art. 1962). In such case, if the debtor insists on paying the debt, he can pay it to the person who paid the creditor (Art. 1824). The law refrains from including unauthorized third party in the list of Art 1740(2) since assignment of a right is a contract. A creditor is not duty bound to receive payment from a person not authorized by debtor or court or law, he is free to accept or reject such payment without any effect on his right against the debtor.

However; the creditor may sometimes insist that debtor himself should perform the obligation (Art. 1740(1). This is when the contract or law expressly provides that the debtor shall perform the contract personally. For example, Ethiopian labor law provides that the employee should perform the contract personally. So, if certain construction company employees A as a daily laborer, he cannot authorize his son or brother to carry out the labor work and the company can refuse to accept A’s son or brother and dismisses A from work.

Moreover, the second case where personal performance becomes necessary is when the creditor proves that personal performance is essential to him. The creditor can be able to prove such only when the obligation is obligation to “do” of a professional nature or art. For example, a lawyer, or a doctor can not authorize a duty which he agreed to do. Moreover, a musicians, painters, Poet, actor, dancer etc cannot authorize someone to perform his obligation.
Generally, creditor should accept performance either from the debtor, his agent or person authorized by the court of law unless he proves that personal performance of the contract is essential to him or contract law expressly provides personal performance.

Who May Receive Payment (Art. 1741-1744)

Payment should normally be made to the creditor or his agent (Art. 1741). However; payment may be made to a tutor, liquidator, or trusted (Art. 1741). Failure to perform contract to a liquidator or trustee is non-performance.

Payment to Incapables (Art.1742)

If the creditor is a minor or judicially interdicted person, payment should not be made to such creditor (Art. 1742). E.g. Abebe, a minor, bought bicycle for birr 1500 from Beshadu. Beshadu shall not deliver the bicycle to Abebe. She should rather deliver it to his tutor. Incidentally, Art.1742 has some redundancy with Art. 1815, 2162 and Federal Revised Family code Art. 302. So Art. 1742 shall be framed as follows; 

Art.1743 Creditor Incapable
.                   A debtor may not make payment to an incapable creditor. 

Payment to Unqualified Creditor (Art.1743)

Another issue in relation to creditor is payment to unqualified person. In principle, payment to unqualified person is invalid. But in the following case, such payment is valid (Art. 1743);

Payment benefited the real creditor

The creditor is benefited when the debtor pays the debt of the creditor. For example, Challa borrowed 50,000 birr from Legese. Legese bought a car from Balew for birr 505,000. If Challa pays to Balew thereby releasing Legese from paying sale price, the payment will benefit Legese.  Notice that such payment may be paid either without the knowledge of creditor or even against his express opposition.

Payment confirmed

Here even if the creditor did not benefit from the payment, he may confirm the payment. Such confirmation has the effect of ratifying an act done without authority (Art. 2192, Art. 2190). However; the creditor cannot be willing to confirm unless he benefited from the payment.  When confirmation is because of benefit such confirmation does not have legal importance. The possibility of getting confirmation without benefit emanates either from good faith or from fear of prosecution against relatives who might have received the payment (sees Art. 1708). For example, a debtor paid the debt to a daughter of a creditor who used the money for enjoying herself in big hotels. A father creditor may confirm such payment.

Payment to a person with a valid title

Here the holder of the title is legally entitled to claim payment although he is not the real creditor. The document gives an apparent right to the holder. The payment made to an apparent creditor is valid even if the document is invalidated later on. However; such payment to an apparent creditor never releases the debtor if the debtor knows that he is paying to apparent creditor. The examples of apparent creditor are; 
Certificate of heir annulled after payment is made (Art-1996-1998) E.g. Abebe applied to court and got a certificate of heir. Abebe collected money deposited by the name of the deceased in a bank (Art. 947). But later on a son of deceased applied and got Abebe’s certificate of heir annulled. The son does not have any claim against the bank since the bank paid to a person holding valid title at the time of payment.
Document evidencing power of agency: a principal might have revoked the agency power but he may fail to collect the document from the agent and the agent may use the document to collect principal’s claim. E.g. Mennen was authorized to collect the salary of Shenkute, her boy friend. But due to dispute between them Shenkute informed Mennen that he revoked her authority and also got such revocation registered with government authority but failed to collect the document from Mennen. Mennen then collected Shenkute’s salary. Payment made to Mennen validly releases Shenkute’s employer.
Holder of Negotiable Instruments (Art. 716 Art. 751 of comm. code) A debtor who paid to a holder of negotiable instrument in accordance of the rules of transfer of negotiable instrument is released from his obligation. E.g. Bilisuma issued a check to Gebru and thief stolen the check from Gebru’s pocket and received payment from Dashen Bank. Bilisuma is released by such payment.

N.B In all of the above case, the debtor should be in good faith. For example if the real creditor warns the debtor to forbear from paying the debt, the debtor is liable if he pays against such warning.

 Doubt as to the Creditor (Art.1744)

Sometimes two or more persons may independently claim the payment of a debt. This mainly arises when the original creditor dies and heirs and creditors are claiming payment. The debtor is not a court and cannot settle such dispute, hence, he shall refuse to pay to any of them. If he wants to release himself from obligation, he can deposit the debt in court of law as per Art. 290 – 293 of the civil procedure code (Art. 1744 (1). If he is not willing to deposit his debt, any claimant may require him to deposit in court (Art.1744 (3). In short when the debtor is unable to know the real creditor he shall deposit the debt in court either by his own initiative or by the request of the claimants. For example, a bank received a notice that a check held by Emru is void. On the other hand Emru is claiming payment. In such case the bank should refuse to pay Emru and can deposit the amount in court either by its own initiation or at the request of Emru or a person who gave notice to it. 
Incidentally these writers believe the Art. 1744 (2) has no better role than exemplifying Art. 1743 (2)

What to Perform (Art. 1745 – 1751)

What to pay (perform) answers the question relating to identify, quality or quality of the thing to be delivered. To properly answer such question we will classify things into definite thing, fungible things and money debts. Incidentally, Art.1745–1751 do not seem to apply to obligation “to do” or “not to do”. 

Definite Thing (Art. 1745 – 1746)

The debtor shall deliver the thing agreed (Art. 1745). The creditor may however, accept things of different identity if he wants. If the creditor accepts the new thing offered to him by the debtor, it means that they agreed to vary or modify contract. Such variation may need to be made in a special form (Art. 1722) when necessary. So rather than the quality of the alternative thing delivered what is important is the consent of the parties. Nobody is bound by what he did not consent to be bound. 

E.g.1 Abel agreed to sell Adaa teff to Gebru. But since Abel is unable to get Adaa teff he supplied Menjar teff of the same quality. Gebru can refuse the delivery.

E.g.2 Alemu ordered a goldsmith to prepare bracelet from 21 karat gold but the gold smith prepared the bracelet from diamond, Alemu can refuse such bracelet.

E.g.3 Abebe bought ox Z from B but since ox Z died before delivery, B offered to deliver ox Y but Abebe may refuse such delivery.

N.B Definite thing is a thing that can easily be identified from similar things of the same species. In short definite thing has its own peculiar identity. Animals and immovable are most prominent examples of definite things. If a thing is definite thing, we can not find its replicate in the world. However, for contract law definiteness of a thing simply indicates that a thing which is a subject of sale is indicated in the contract in its own specific name. For example if the sale is white teff the thing is definite in relative to the generic term teff. However; when we come to groups white teff itself is indefinite thing since white teff is of different variety. 

The creditor has also a right to refuse part payment. He has also a right to claim part payment and bring court action for the remaining part or give grace period for such part payment (Art 1746).

Fungible Goods (Art. 1747–1748)

Fungible goods are goods that are indicated in the contract by using generic terms such as pasta, teff, wheat, barely. In such case since the thing is not expressly indicated in the contract, the contract is interpreted in favorer of the debtor (Art. 1738 (1) and the debtor can freely determine its quality (Art. 1747). However, the quality should not be less than the average (Art.1747 (2). For example, if a seller agreed to sell five hundred quintals of teff. He can deliver teff of average quality. Delivery of insufficient quantity or quality (when the quality was already agreed up on) does not necessarily lead to the cancellation of the contract unless it is declared to be fundamental breach of contract (Art. 1748 (1) cum. 1785 (2). Incidentally, the phrase “... essential to him…” under Art.1748 (1) should be given equivalent meaning with the phrase “... fundamental provisions of the contract.” under Art.1785 (2). Moreover; even if the quantity /quality is not essential or fundamental to the creditor, the contract may provide unilateral cancellation if such quality or quantity is violated (Art. 1786 cum. 1748 (1).

Money Debts (Art. 1749–1751)

If the debt is money debt, payment should be made in local currency of place of payment (Art. 1749 (1). For example, if the place of payment is in USA, payment should be made in US Dollar for two reasons.  Firstly, the debtor may not be able to get the foreign currency in the place of performance. For example, in Ethiopia only importers are allowed to purchase foreign currency in the market. Secondly, it may be illegal to carry foreign currency for more than a certain time limit. For example, in Ethiopia any person who carries a foreign currency for more than forty – eight hours is criminally liable. 

If payment is in a local currency, the issue that comes to our mind is the exchange rate. For example, if contract provides that the debtor pays birr 200,000 on April 29 in USA, the birr should be converted into Dollar. The question is “how much dollar is birr 200,000”. This is determined on the basis of exchange rate on the day of payment (Art 1750). But the law never answers the place that is to be used as a reference to determine the rate. For example the exchange rate of birr in dollar may differ in USA and Ethiopia on the same days. In USA one dollar on April 29 may be birr ten but in Ethiopia one Dollar may be birr thirteen. So if the debtor claims that the exchange rate should be determined on the basis of the exchange rate in Ethiopia, the amount of dollar that he pays is less than the amount of dollar he pays if US market is used as reference. If we see the above example, if the reference is US market the debtor pays 20,000 dollar but if the reference is Ethiopian market the debtor pays 15384.615 dollar. Although the law is silent on this point, the writers believe that the place where the currency indicated on the contract serves as medium of exchanges should be taken as a reference market to determine the exchange rate. For example, in the above case, Ethiopia exchanges market should be a reference market. 

Another issue that is not solved is unavailability of exchange market. For example, what if the currency indicated on a contract is Birr and place of payment is Peru and Peru’s currency is not available in Ethiopian foreign exchange market and Ethiopian birr is not available in Peru’s foreign exchange market. In such case, the solution is to convert the birr into Dollar in Ethiopia and convert that Dollar into Peru’s currency in Peru’s exchange market. For example, if the debt is birr 1000, 000 and to be paid in Peru. We first convert the birr into dollar in Ethiopian market, and say one million birr is hundred thousand dollar in Ethiopia’s exchange market and we will convert such 100,000 dollar into Peru’s currency in Peru’s foreign exchange market. 
Notice that parties may agree that payment shall be made in actual currency indicated on the contract (Art.1750).

Incidental to money debt are inflation of currency and interest rate.  Parties may avoid inflation by determining the amount of money debt in reference to the price of a specified good. For example, a person who lends birr 200,000  to be repaid after ten years may say that the amount to be repaid shall be able to  buy 50 tons of first quality Addaa teff. Art 1749 (2) is not   a law since it imposes obligation on no party; it is simply reminding the parties the possible option of avoiding or reducing the consequence of inflation. The draftsman tried to give justification for the inclusion of such provision in the code (David p.45). He included such provision in order to avoid a doubt as to the legality of such provision (ibid). However; such justification may be contradictory to freedom of contract (Art. 1711 cum. 1731(2)). The parties can freely determine content of contract as far as it is not contrary to mandatory provisions of the law.

Appropriation of payment (Art. 1752-1754)

Appropriation of payment is important when the debtor pays only part of his obligation. Such payment has some effect on the rights of a creditor in relation to the remaining obligation. For example, in case of cost, interest and principal debt, the appropriation of payment matters when the debtor pay interest on the principal but does not pay such interest on cost and interests. In case of two or more principal obligations also some of these obligations may impose more burdensome obligation. Therefore, appropriation of payment is very important.

Principal Debts and its accessories (Art 1752)

If a person is unable to pay the whole debt (principal, interest and cost) at one time, the part payment made by the debtor shall be appropriated firstly to the cost; secondly to the interest; and finally to the principal (Art. 1752). For example, Belaynesh borrowed birr 100,000 in 2000 at a rate of 9% per annum and debt was to be paid after five years. But Belaynesh failed to pay the debt, and the creditor brought court action and incurred cost of birr 10,000. So the principal debt is 100,000, interest, 72,000 and cost 10,000. Assume Belaynesh made a payment of 30,000; the apportionment is first to the cost so the cost is extinguished and the remaining 20,000 is apportioned to the interest. So the debt of Belaynesh is principal 100,000   and interest 52,000. The effect is that the interest continues to count on the total 100,000 birr.

Multiple principal Debts (Art. 1753-1754)

In case of multiple debts, choice is given to the parties and only if they fail to exercise their right of choice that the legislator chooses the debt to be paid first and the debt that follows.

Choice by the parties (Art.1753) unless the parties agree that choice should be made by the creditor, the law presumes that the right to choose is for the debtor (Art 1753 (1). This is in accordance with the principle of interpretation in favor of the debtor. The debtor may indicate his choice by opposing an appropriation made by creditor on receipt of payment (Art. 1753(2). However, if the debtor has failed to indicate his choice to the creditor and has not opposed the appropriation written on the receipt, the debtor is presumed to have given this chance to the creditor. So the choice of the creditor binds the debtor (Art. 1753) (2).  For example, Abebe borrowed birr 500,000, he also bought a car for birr 300,000 from the same creditor. Then Abebe made a payment of 300,000 and indicated that he was paying the loan. In the same case if Abebe made payment without indicating the debt and the creditor gave a receipt for payment of sale, Abebe can immediately object the appropriation and indicate his own preference. The debtor should object as soon as he receives the receipt. Objection is not enough, he should indicate his preference, and otherwise the creditor could still continue to choose among the remaining debts.

Choice by the law (Art. 1754) When both the debtor and creditor fail to indicate the appropriation the law presumes the following appropriation. 
 Debts already due. Appropriation is to the debt which is most advantageous to the debtor (Art.1754 (2). For example the loan of 500,000 which imposes 12% interest rate and which was due on Jan 2, 2008 and sale price without penalty any payment made by the debtor shall be appropriated to the loan. (See also Art. 1754(3).)

Debts due vs. future debts: - Appropriation shall be made to the debt which is already due (Art. 1754(1).

Future debts Vs future debts: - appropriation is to the debt which becomes due earlier (Art.1754 (1)

Future debts having the same due date: to the debt which first appropriation benefits the debtor most (Art. 1754(2) but if the advantages are equal payment shall be appropriated proportionally (Art. 1754(3).

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