Sources of Obligations

Sources of Obligation

• Source of obligation indicates the origin of the obligation.
• Obligations arise from either the law or a contract.

Law as a Source of Obligations

• Some obligations are a direct result of the law.
• The law itself can impose obligations on individuals.
• Legal obligations are binding and enforceable on all.
• Legal obligations are not dependent on personal willingness.
• All individuals must abide by legal obligations; for example, those who earn income must pay taxes.
• The obligation to provide military service or defend one's country is a legal obligation.
• Maintenance obligations, like supporting parents in old age, do not rely on personal willingness.
• Parents are legally required to provide for their children's maintenance; Article 198 of the Revised Family Code applies.

Contract as a Source of Obligations

• Obligations can be formed through agreements between contracting parties.
• Contractual obligations differ from legal obligations since they are undertaken willingly.
• Entering into a contract is voluntary.
• A binding obligation is created when a contractual agreement is made.

Definition of Contract

• Ethiopian Civil Code Article 1675 defines a contract.
• According to Art. 1675, a contract is an agreement where two or more persons create, change, or end proprietary obligations.

Elements of the Definition

• A contract is based on an agreement that is consensual and not legally imposed, requiring an intention to be bound.
• A contract requires at least two persons and has no maximum limit for the number of parties involved.
• A contract only binds the parties involved and does not affect third parties.
• Freedom of contract allows parties to agree on any subject, creating, changing, or ending obligations, but it is subject to legal provisions.
• Obligations of a proprietary nature are economic, expressed, and valued in monetary terms, excluding agreements on status like marriage or adoption.

Formation of Contracts

• Article 1678 outlines four essential requirements for a valid contract.
• The parties must be capable of contracting and give their consent, sustaining it at law, regarding capacity and consent.
• The contract's object must be clearly defined, possible, and lawful.
• The contract must be in the legally prescribed form, if any.
• The basic essential elements of a contract are consent, capacity, object, and form if any.

Capacity

• Contracting parties should be capable of performing juridical acts.

Consent

• Contracts rely on the freely given consent of all parties.
• Consent is an agreement given freely, willingly, and without defects.
• Offer and acceptance are crucial modes of expressing consent.
• An offer is a person's expression of intention to enter a contract, showing their willingness.
• The person making the offer is known as the offeror.
• Unless a special formality is required, communication can be oral, written, by sign, or by conduct.

Exceptions

• Civil Code Article 1687 provides exceptions regarding offers.
• A person is not deemed to make an offer if they declare their intention to give, do, or not do something without making it known to the beneficiary.
• Sending tariffs, price lists, catalogues, or displaying goods for sale does not constitute making an offer.
• Sellers sending catalogues with prices are indicating a willingness to consider an offer made by another person.

Acceptance

• Acceptance is when the offeree agrees to the offeror's proposal unequivocally.
• When an offeror expresses a willingness to enter a contractual agreement, the offeree has several options, including the ability to ignore, accept, or reject the offer.
• Acceptance of an offer is the outward manifestation of agreeing to the terms of the offer, as invited or required.
• Reservations or restrictions intended by one party do not affect the expressed agreement.
• The offeree is expected to make their acceptance to the proposal clear.
• Acceptance needs to be definite and certain, so the offeror knows whether the offeree is accepting it.

Silence

• According to Article 1682 of the Ethiopian Civil Code, silence does not amount to acceptance of an offer.
• The offeree's silence, in general, does not count as acceptance.
• There are three exceptions where silence constitutes acceptance when it is the duty of the offeree to accept an offer by law or concession.
• Silence is acceptance in general business terms prescribed by authorities, like Tele and ELPA.
• Silence is acceptance in cases of pre-existing business relationships and an offer is made to continue or vary an existing contract, or to enter a subsidiary contract.

Grounds for Termination of Offer

• Major grounds for the termination of an offer include lapse of the duration of an offer or revocation (withdrawal) by the offeror.
• If the offer does not have a time limit, it will end after a reasonable time has passed, in which the offeror expects the offeree to decide.
• Revocation is when the offeror takes back the offer.
• Additional grounds for offer termination are rejection or counter-offer by offeree or death, incapacity, or bankruptcy of offeror or offeree.

Defects in Consent

• A contract cannot be binding if it is created without free consent.
• A contract can be invalidated when mistake, fraud, or duress is involved.
• These major defects in consent are mistake or error, fraud or deceit, and duress or violence/threat/coercion.

Mistake

• Mistake occurs when a party enters a contract based on an incorrect belief.
• A misunderstanding or misconception of legal situations can lead to a mistake.
• The law does not recognize every mistake as a reason for invalidating consent, so two tests should be performed.
• A mistake must be decisive; without the erroneous belief, the other party would not have agreed.
• A mistake must be fundamental, related to identity/qualification of parties, the contract's nature, or the subject matter.

Fraud

• Fraud is when a deceitful action by one party leads to the contract being made.
• Both mistake and fraud involve misunderstanding of the situation, but only fraud involves a deliberately created belief.

Duress

• Duress occurs when consent is obtained through violence, using coercive acts to remove freedom.
• Coercive acts can be committed against a party's life, person, property, or their relatives.
• However, such an act of violence must be serious and imminent.

Object of a Contract

• The object of contract refers to the obligations undertaken by the parties.
• Contracting parties can determine their obligations' nature, called freedom of contract.
• This freedom is limited, as they cannot create obligations conflicting with society's moral values.
• The object of a contract must be precisely defined.
• A contract is ineffective if the parties' obligations cannot be determined.
• The object of a contract must be possible at the time of conclusion.
• A contract is ineffective if the obligations relate to something impossible or insurmountable.
• The object of a contract must be lawful, as per Article 1716 of the Ethiopian Civil Code, and unlawful/immoral obligations make a contract void.

Form

• Form is the last exceptional requirement for a contract's validity.
• There is freedom of form, meaning parties can affect their contract in any form.
• Mandatory or special formality is an exception when prescribed by law or agreed by the parties,.
• When the law requires a juridical act to be written/registered, that requirement must be met.
• Certain contracts, such as those for immovable property, insurance, partnership (excluding joint ventures), and guarantees, must be in writing.

Effects of Contracts

• Performance involves fulfilling the obligations outlined in the contract.
• Fulfilled obligations serve as grounds for ending the contract.
• There are two parties relation to performance, the debtor and the creditor.
• The debtor is the one who assumes an obligation and is expected to fulfill it for the other party.
• The creditor is the one who claims a right under the contract and demands performance from the debtor.
• Key considerations are who performs, to whom, and the time/place of performance.

Who Performs and to Whom?

• Performance can be carried out by the debtor, their authorized agent, the court, or the law.
• Personal performance by the debtor is needed when it is essential or expressly agreed upon.
• Performance has to be made directly to the creditor or to a third person authorized by the creditor, or legal/court entity.
• Depositing payment in court/bank is a safe measure if there is doubt about whom to pay.
• Payment to an unqualified or doubtful creditor does not qualify as valid performance.

Place and Time

• Performance generally occurs at the agreed place and time.
• If no agreement exists, payment happens at the debtor's address (residence) or where the thing is located, upon notice.

Transfer of Risk

• Risk in contracts refers to loss, damage, or deterioration of the subject matter.
• Debtor bears the risk until delivery, under Ethiopian law.
• The creditor assumes risk upon delivery.
• Risk may transfer to the creditor without subject matter transfer if the creditor delays taking delivery.

Non-Performance and Remedies

• Non-performance is when a debtor fails to fulfill their contractual obligations.
• This constitutes a breach of contract.
• It can be total, partial (inadequate), or delayed.
• If non-performance is established, the aggrieved party can pursue remedies for breach.

Default Notice

• Prior to remedies, a default notice is an essential step.
• It signifies that the creditor wants the contract to be carried out.
• Giving default notice reduces court cases when followed, transfers risks, and starts default interest.

Forced Performance

• Forced performance, sometimes known as specific performance, is when the court orders the debtor to fulfill.
• In order for this to be granted, it has to involve an essential factor.
• The remedy should not violate personal liberty.

Cancellation of Contract

• Cancellation ends a contractual relationship due to non-performance.
• It can be achieved through court order (judicial cancellation) or a party's decision (unilateral cancellation).
• Both can involve a party unilaterally canceling without going to court or involve the courts decision to cancel.

Judicial Cancellation

• Contractual relationship is cancelled with the help of the court.
• A party affected by non-performance can seek cancellation, the court decides upon justifiable grounds.
• Success involves reinstatement to its initial position.

Unilateral Cancellation

• Cancellation must be done without going to court.
• Ethiopian law identifies unique grounds for this.
• Situations when performance is impossible, anticipatory breach, expiry of time limit in the the agreement are valid reasons.

Compensation of Damages

• Damages are payments to compensate what the creditor has lost due to the debtor's failure to fulfill the obligations.
• This covers financial losses from non-performance.
• Damages may be claimed by proving non-performance and resulting losses, even without fault (strict liability).
• The debtor does not pay damages if his or her failure is due to force majeure.
• These events could not have been anticipated and completely prevent the debtor from fulfilling his or her obligations.
• Examples of cases are acts of people, ban of the performance, natural events, civil war, death or illness.

Substituted Performance

• When performing the original duty is not possible, another duty can be replaced with the court's approval; Arts 1777 and 1778 of the Ethiopian Civil Code.

Extinction of Obligations

• Common grounds exist for ending contractual relations with Ethiopian law.
• Performance is where terms and conditions are met.
• Cancellation occurs dues to problems with performance.
• Invalidation occurs dues to problems during a contracts formation.
• Termination occurs when a contracts future effects are ended with agreenment or court order.
• A remission of deb occurs when a creditor forgives a debt.
• Novation occurs when a new obligation is substituted for the original obligation.
• set off occurs when a debtors obligation is set of by an obligation.
• Merger occurs when creditor and debtor positions merge in same person.
• Period of limitation occurs when obligaiton is not demanded in legal time frame.