Thursday, April 1, 2021

General remedies for non-performance of contract under Ethiopian law

 

 General remedies of non-performance under Ethiopian law

 

The general provisions of Ethiopian law contract recognize three types of remedies of non-performance. These are stipulated under two sub-articles of Article 1771 as the effects of non-performance. It reads as follows

(1)   Where party dose not carry out his obligations under the contract the other party may, according to the circumstance of the case, require enforcement of the contract or the cancellation of the contract or in certain cases may himself cancel the contract.

(2)   He may in addition require that the damage caused to him by nonperformance be made good

 

Accordingly, the remedies of non-performance are (1) the enforcement of the contract, (2) Cancellation, and (3) Compensation /damages. As provided under the above provision, they are alternative remedies. So, the victim party may choose any of the remedies based on the circumstances. However, when we read this provision together with article 1790, we understand that the third remedy, i.e., compensation, can be claimed as independent remedy or additional remedy. Thus, damages may be claimed independently (for example where performance is delayed) or in addition to enforcement or cancellation. One crucial question is under what circumstances each of these remedies would be appropriate. Before addressing these issues, it is important to discuss the pre-requisites for invoking these remedies.

 

The pre-requisites for invoking the remedies of non-performance

 

As indicated earlier, before resorting to the remedies of non-performance, the victim party shall put the other party in default by giving him a notice. Following, we will discuss the application of this pre-requisite under Ethiopian law as covered under articles 1772-1775.

 

Article 1772 provides the general rule that the giving of default notice is a pre-condition for invoking the remedies of non-performance. It reads:

 

 A party may only invoke non-performance of the contract by the other party after     having placed the other party in default by requiring him by notice to carry out obligations under the contract.

 

As put by some commentators, this provision is self-explanatory. It clearly states that the giving of default notice is a necessary condition for invoking the remedies of non-performance. Default notice is demanding the debtor to perform his/her obligation within a certain time limit. It has a number of functions including that of reminding the debtor and reducing litigation. Though contested, it may also lead to the consequences stated under Article 1758, i.e., transfer of risk.  However contested its functions may be, the giving of default notice is, as a matter of rule, a necessary pre-condition for invoking the remedies of non-performance stated under article 1771.

 

A very important questions in this respect are when should default notice be given and in what manner. Another question how much time should the victim give to the debtor to perform his obligations. These issues are addressed under Articles 1773  & 1774.

Art. 1773. – Form and time of notice

(1)    Notice shall be by written demand or by any other act denoting the creditor's intention to obtain performance of the contract.

(2)     Notice may not be given unless the obligation is due.

 

There is no formal requirement for default notice & it may be given in any form: in writing, orally or clear conduct. What is crucial is an unambiguous, clear communication/expression of the creditor’s intention to obtain performance of contract. 

 

Regarding time, sub article 2 says default notice cannot be given before the due date of the obligation. Normally, the creditor can demand performance only if the obligation is due and it is logical to say that default notice can be given only in respect of such obligations.

 

Article 1774 stipulates that the creditor shall fix a period of time with in which he accepts performance, or after the expiry of which he will not accept performance. And this period of time must be reasonable to allow the debtor to discharge his obligations. The Provision reads as:

(1)   The creditor may in the notice fix a period of time after the expiry of which he will not accept performance of the contract.

(2)   Such period shall be reasonable having regard to the nature and circumstances of the case.

 

One question that arises in this respect is What is the criteria to determine whether the time fixed in the default notice is reasonable or not? Such reasonableness shall be determined taking into account the nature and circumstance of the case. Such circumstance, in the case obligation of delivery, may include whether the thing to be delivered is in the hands of the debtor or whether it is to be manufactured in the future and the time needed for its manufacture.

Exceptions to the rule

 

As a rule, the law requires the creditor to give default notice to the debtor according to the rules of 1772-1774 in order to invoke the remedies of non- performance. However, there are exceptional circumstances where the creditor can resort to the remedies with out giving default notice to his debtor. These circumstances are provided under Article 1775. The caption of article 1775 stated as “ notice when unnecessary” suggests that the remedies can be applied with out default notice.  Article 1775 reads as follows;

 

        Notice need not be given where:

(a)   the obligation is to refrain from certain acts; or

(b)   the debtor assumed to perform an obligation which the contract allows to be performed only within a fixed period of time and such period has expired; or

(c)    the debtor has declared in writing that he would not perform his obligation; or

(d)   it is agreed in the contract that notice shall not be required and the debtor shall be in default upon the expiry of the time fixed.

 

These provisions provide four cases where the creditor invokes the remedies of non-performance with out giving default notice.

 

The firs case indicated in sub (a) is where the obligation of the debtor is an obligation not to do, i.e., negative obligation. In this case, a non-performance results from the debtor’s doing of the prohibited act.  Since, the non-performance cannot be reversed /rectified by notice, the giving of default notice serves no purpose, and thus becomes useless/unnecessary. 

 

 The second case indicated in sub (b) is when the obligation of the debtor is such that it may be performed only within a fixed time and the debtor fails to perform with in such time. Here the nature of the debtor obligation is a determining factor. It may be inferred from the contract that any performance after the expiry the time fixed is useless for the creditor. The time may be the most essential element of the contract, i.e., creditor has entered in to the contract expecting performance with in the time fixed. Assume, you have ordered cakes and drinks for the celebration of your birthday, and the debtor has promised that he /she will deliver them on time for the celebration. Here time is crucial. The contract does not allow late performance. Thus, if the debtor fails to perform his obligation within the time fixed, the creditor need not give default notice simply because performance is no more necessary. The creditor may invoke the remedies of non-performance with out giving default notice.

 

The third case indicated in sub (c) is when the debtor communicates his refusal to perform in writing. This is sometimes referred to as anticipatory breach of contract. It is important to distinguish between refusal communicated in writing and others. The debtor’s oral refusal to perform does not relieve the creditor of his obligations to give default notice. It is only when the refusal is communicated in writing that the creditor be relieved of the pre-requisite of default notice. What do you think is the reason?

 

The last case indicated in sub (d) when the parties have in their contract excluded the giving of default notice. This is a recognition and implementation of freedom of contract; the parties are free to disregard/exclude the provisions of article 1772, thus a non-performing party is in default as of the expiry of the time fixed for performance with out need for the creditor to give a default notice. Thus, the creditor may invoke the remedies of non-performance immediately.

 

To conclude, a party affected by non-performance shall put the debtor in default before he invokes the remedies of non-performance (1771) except in the four circumstances stated under article 1775. In the following sections we will discuss the remedies of non-performance outlined above. To remind you, these remedies are (1) enforcement of the contract, (2) cancellation of the contract, and (3) damages/compensation.  These remedies are applied considering different circumstances.  The circumstances, which determine the application of these remedies, have been provided in the preceding provisions starting 1776-1805.

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