LAW OF CONTRACT – II Teaching Material Developed By: 1.) Balew Mersha 2.) Kahsay Debesu Sponsored by the Justice and Legal System Research Institute 2009 Table of Contents Introduction---------------------------------------------------------------------------------- 1 Chapter One: Extinction of Obligations----------------------------------------------- 2 1.1. Performances of Contracts------------------------------------------------------------ 2 1.2. Invalidation and Cancellation-------------------------------------------------------- 3 1.3. Termination of Contracts------------------------------------------------------------- 14 1.4. Remission of Debts-------------------------------------------------------------------- 18 1.5. Novation-------------------------------------------------------------------------------- 19 1.6. Set-off----------------------------------------------------------------------------------- 24 1.7. Merger---------------------------------------------------------------------------------- 31 1.8. Limitation of Actions----------------------------------------------------------------- 34 Chapter summary------------------------------------------------------------------------- 41 Review questions--------------------------------------------------------------------------- 43 Chapter Two: Special Provisions Relating To Contracts------------------------- 44 2.1. Time provisions------------------------------------------------------------------------ 45 2.2. Conditional Contractual Obligations------------------------------------------------ 50 2.3. Alternative Obligations--------------------------------------------------------------- 60 2.4. Earnest---------------------------------------------------------------------------------- 62 2.5. Provision as to liability--------------------------------------------------------------- 63 Chapter summary------------------------------------------------------------------------- 70 Review question---------------------------------------------------------------------------- 71 Chapter Three: Plurality of Debtors and/or Creditors--------------------------- 72 3.1 Solidarity Obligations in Case of Plurality of Debtors--------------------------- 73 3.1.1 Nature of plurality of debtors or creditors in different legal systems------ 73 3.1.2 Treatment of solidary obligations incase of plurality of debtors under Ethiopian Law---------------------------------------------------------------------------------- 76 3.1.3 The effect of joint and several obligations on the relations between creditor(s) and co-debtors------------------------------------------------------------------ 78 A) Res Judicata--------------------------------------------------------------- 78 i B) Default Notice------------------------------------------------------------ 79 C) Void and Void able Obligations--------------------------------------- 80 D) Remission of Debts------------------------------------------------------ 80 E) Novation------------------------------------------------------------------- 82 F) set-off----------------------------------------------------------------------- 83 3.1.4 Defenses open to joint debtor-------------------------------------------------- 84 3.1.5. The Relation of the co-debtors inter se-------------------------------------- 85 3.3. Joint Creditors------------------------------------------------------------------------- 88 3.3: Non Joint Obligations--------------------------------------------------------------- 92 3.3.1 Indivisible obligations----------------------------------------------------------- 92 3.3.2 Divisible obligations------------------------------------------------------------- 94 Review Questions-------------------------------------------------------------------------- 97 Chapter Four: Surety ship--------------------------------------------------------------- 98 4.1: Nature of Surety ship--------------------------------------------------------------- 98 4.2 Effects of Surety ship--------------------------------------------------------------- 110 4.2.1. Effects of Surety ship between the Creditor and the Surety-------------- 110 A. The moment for action------------------------------------------------------- 110 B. Maturity of debt-------------------------------------------------------------- 110 C. Simple surety ship and joint surety ship------------------------------------ 111 i). Simple surety ship---------------------------------------------------------- 111 ii) Joint Surety ship------------------------------------------------------------ 117 D. Acceleration of action by guarantor----------------------------------------- 118 4.2.2. Effect of Surety ship between the Debtor and the Surety----------------------- 119 4.3. Protection of guarantor's action against debtor------------------------------------ 122 A) Duties of Creditor------------------------------------------------------------- 122 B) Security obtained from principal debtor (recourse before payment) --- 123 C) Loss of right-------------------------------------------------------------------- 124 4.4. Plurality of Guarantors--------------------------------------------------------------- 124 1. Counter Guarantor-------------------------------------------------------------- 124 2. Secondary Guarantor (in French "surety ship certifier") ------------------ 125 ii 3. Plurality of Simple and/or Joint Guarantors--------------------------------- 126 4.5 Relationship between/among Co-sureties------------------------------------------ 131 4.6 Extinction of Surety ship------------------------------------------------------------ 136 Review questions--------------------------------------------------------------------------- 139 Chapter Five: Third Parties in Relation to Contracts----------------------------- 142 5.1. Promises and stipulations concerning third parties-------------------------------- 143 5.1.1. The option to substitute a third party----------------------------------------- 144 5.1.2. The promise for third party ---------------------------------------------------- 147 5.1.3. Stipulation for the benefit of a third party ----------------------------------- 149 5.2. Assignment of rights and subrogation--------------------------------------------- 156 5.2.1. Assignment of Rights---------------------------------------------------------- 157 5.2.2 Subrogation----------------------------------------------------------------------- 163 5.2.3. Effect of subrogation or assignments----------------------------------------- 170 5.3. Delegation and Assignment of Obligations--------------------------------------- 171 5.3.1. Delegation of Obligations------------------------------------------------------ 172 5.3.2. Assignment of Obligations----------------------------------------------------- 176 5.4. Heirs and Creditors of the Parties -------------------------------------------------- 177 5.4.1. Heirs of the Parties-------------------------------------------------------------- 178 5.4.2. Creditors of the Parties---------------------------------------------------------- 179 Review questions--------------------------------------------------------------------------- 190 Chapter Six: Proof of Contracts------------------------------------------------------- 192 6.1. Burden of proof and admissibility of evidence------------------------------------ 193 6.2. Written evidence and its probative value------------------------------------------- 197 6.2.1. Authentication of Documentary Evidence------------------------------------ 197 6.2.2. Best evidence rule---------------------------------------------------------------- 200 6.3. Presumption of payment ------------------------------------------------------------- 204 6.3.1 Contrary proof ------------------------------------------------------------------- 206 Bibliography ------------------------------------------------------------------------------- 208 iii Introduction As it might be speculated, this material is the continuation of contract I. In Contract I material you have read about formation of contract, along with the elements for its formation, the effect of an already formed contract and other important points. In this material, you will find the methods and mechanism of protecting your right if the contract suffers from defects in consent as it is enunciated in the Contract Law I material or if you need to cancel the contract for different reasons. The consequences of cancellation and invalidation of contracts with other means of extinction of contract are dealt within Chapter One of this material. Again, it is to be recalled from contract one reading material that the autonomy of the parties to make their own contract is one of the corner stones on which the law of contract seeded. Chapter Two of this material will take you further and strengthen your understanding of the issue by discussing some very common terms of contract, their implication and the position of the law in their interpretation when the parties fail to regulate it in their contract. In contract I, it is provided that at least two parties are needed for the formation of a contract. In light of this, it is not uncommon to find more than two parties involved in one contract. In Chapter Three of this material, therefore, you will find some principles and rules dealing with the plurality of parties shaped in a way to give you precise but adequate notes. In Chapter Four of this material, surety ship will be discussed. In reading this chapter, you have to relate the notes with your daily activities and to visualize some