Mekelle University: School of Law

Construction Law
Part I: Introduction to Law
for
Engineers!
By
Kahsay Giday (LL.B, LL.M in Business Law; Assistant Professor)
kahsayg21@gmail.com 1
 Self Introduction
 Name, Profession
 Current Position and service years
 Educational Level
 Two unique Qualities about you
 Your expectations from this session

Round Rules
 Time: start________6;30_end 8:30
 Panctuality : workload
 Active participation: must
 Break time: no break
 continous: assessment

2
Meaning, Nature and Functions of Law
 As an Engineer one may ask a question to oneself about the need to
know the law. What is the need for You as an engineer to know the
law?
 knowing the law is not an option, it is mandatory to survive and
thrive,
 Assume: a person may say that he did not know that killing
anyone or stealing another ones property is illegal
 If such an excuse is accepted by the courts, it will result in chaos
and anarchy, where the main purposes of law; order, peace,
predictability and certainty are defeated.
 Ignorance of law is not an excuse,
 The scope of the law is from womb to tomb, and cradle to grave,
 It is not possible for any person to know all the laws, or
collectively the law.

Only introductory parts of the law.

 1.1. Definition of Law
Defining the term law is not an easy task because:
The term is dynamic to changes
Different scholars define the term differently
The definition varies with the aim sought to be achieved
Definitions are as many as the theories
Black’s Law dictionary: Law “consists of rules of action
or conduct”.
• These rules are issued by an authority.
 They have binding force and are obeyed and followed
by citizens.
Sanction or other legal consequences may help the law
to be abided by citizens
Unlike other normative orders such as custom or
convention:
There must be a pressure that comes from external in
the form of actions or threats of action by others
regardless of the person wants to obey the law or not;
These external actions or threats of action always
involve coercion or force;
Individuals/state officials whose role is to enforce the
law must enforce the coercive action.
We could also understand Law as “Collection of rules that
regulates social behaviour.”
 1.2. Basic Features of Law
Help as to further understand the concept of law.
I. Generality
Law is a general rule of human conduct. It does not
specify the names of specific persons or behaviours.
Its generality is both in terms of the individuals
governed and the social behaviour controlled. The
extent of the generality of the law depends on whom
the law is applicable. The subjects of laws are given in
general terms. However, the extents of the generalities
decrease from universality to an individual person.
Generality of the subject of the law may serve two
purposes. Firstly, it promotes uniformity and equality
before the law because any person falling under the
group governed by the law will be equally treated under
the same law. Secondly, it gives relative permanence to
the law. Third, it avoids bulkiness. A law can govern
millions of similar acts and that saves the legislator from
making millions of laws for similar acts, which may
make the law unnecessarily bulky.
II. Normativity
Law creates norms/standard by allowing, ordering or
prohibiting the social behaviour. Based on this feature,
law can be classified as permissive, directive or
prohibitive.
Permissive: allow or permit their subjects to do the act
they provide by giving right or option to their subjects
whether to act or not to act. Most of the time such laws
use phrases like have the right to, is
allowed/permitted/free to.
Directive: orders, directs or commands the subject to
do the act provided otherwise there is an evil
consequence. They are mandatory provisions of the law.
Usually use phrases like must, shall, have the
obligation to…..
Prohibitive: discourages the subject from doing the act
required not to be done leading to evil consequence for
violators. Criminal code provisions are typical
examples. These laws use phrases like: must not, shall
not/should not, no one shall, is punishable, is a
crime…
III Sanction:
state imposes sanctions for violations. This sanction can
be imposed by the state directly or indirectly (based on
individual complaints). The state will have its
machineries to make sure that the laws it has enacted
are respected by its subjects.
IV Pervasive: Almost all activities are subject to the
governance of the law. Law regulates our social,
economical, political and sometimes personal aspects of
life.
V Prospective: In principle law looks into the future.
It is enacted to regulate relationships that may arise in
the future.
VI Reflective:
 law reflects the existing behaviour of the society. In a properly
developed legal system, someone can look into its laws and
assume the economic, social, political, etc status of a country.
VII Dynamic:
behaviour of the society is never static. Individuals as well as
society change for different reasons. Hence, the law, which
governs the behaviour, must change accordingly.
VIII Progressive:
Law can be used as a means of transformation of a society.
Whenever, some changes are intended in any aspect of the life
of a society, law can lead the way.
 1.3. Functions of Law
Law does exist to regulate the behaviour of the society
because non-regulation will lead to a society
without order. The relationship of the society must also
be governed well for a country to achieve peace and
development. Law makes relationships formal and gives
individuals the power and opportunity to claim what has
been given to them. With this, law prohibits members
from taking justice into their own hands. Different laws
have different specific purposes. When you read laws, you
find why it is enacted in its introductory part (what is
called the preamble). In summary, some of the law’s
purposes can be listed as:
 Social control
 Dispute settlement
 Social change
1.4 Hierarchy of of Laws
All jurisdictions have their respective hierarchy of Laws
Eg. In Ethiopia: the grounds of hierarchy of law based
on the formal source of law including:
Constitution -people
Proclamation -HPR Vs. State council
Regulation-Council of Ministries vs. state
administration
Directive- Ministries vs. Bureaus
Circulars- specific agency or Regulating
institutions
1.5 Classification of Laws
 The grounds of classification of law can be several. Some of them are stated
below:
 Domestic Laws and International Laws: this classification is based on the
scope of application of the law and the subjects governed. Domestic laws govern
internal issues in a legal system and members of the community are its main
subjects. On the other hand, international law transcends domestic boundaries
and applies to international matters. Hence, the subjects of international law are
mainly states/countries.
 Private Laws and Public Laws: This type of classification is done based on
what type of relationship is governed by the particular law. Private laws which
are of private nature regulate the relationship between/among individuals while
public laws which have public nature in them involve the state, at least on one
side of the relationship.
 Civil (Regulates private interest) and Criminal Laws (public interest):
 Substantive (Right, duties, privilege) and Procedural Laws (process of
enforcing): This classification looks into the content of the law. If the content is
dealing with substance of the norms people must follow, it is part of the
substantive laws. On the other hand, if what is stated is the ways of enforcement
of the substantive provisions, the law is grouped in procedural laws.
 Laws can also be classified as to the specific areas they govern as family laws,
contract laws, property laws and etc.
1.6 The Ethiopian Legal System

According to the FDRE constitution:

 Two tier of governments: federal state s . There is a clear division of
power between and one has no overriding power over the other.
 Established as a democratic nation which signifies that the ultimate
power is on the people. It is also a republic administered by a
government which is not a monarch.
 In both tiers of government, there are three organs, the legislative
(law making organ), executive (law enforcing organ) and the judiciary
(law interpreting organ). There is the concept of separation of power
among these organs but with proper check and balance mechanisms.
 There are hierarchies in the laws of the state.
 The constitution is the supreme law of the land.
 Proclamations,
 Regulations,
 Directives and other bylaws.
Part II: Introductory Concepts and Acquisition of Personality
for
Engineers!
Definition/Meaning: Persons

traditional meaning: Human beings

Under earlier legal systems: human beings who took

part in juridical relations were regarded as persons while
those who couldn’t perform juridical acts were
considered as lacking legal personality.
Philosophers of the Middle Ages: Used the word
‘persona’ to designate the legal entity.
At present, application of the term ‘person’ has gone
beyond the sphere of legal entities & human beings: it
also applies to entities that have international legal
personality.
In Ethiopia the word “Sewoch” refers to ‘human beings’
as creatures and to humans and legal entities as subjects
of the law.
Generally
“Human being” and “person” are not interchangeable.

The term ‘person’ refers to both human beings and

juridical/juristic entities that are bearer of rights & duties.
A juridical /legal/Artificial person: has distinct legal
existence separate from its members.
Have common attributes/features (Having name, Sue
& be sued, own & administer property, enter into K,
obligation to pay tax).
 Hold duties & rights (Article 1 of the Civil Code)

 However, there are rights that cannot be exercised by

legal persons.
The phrase “subject of rights” obviously implies
corresponding duties.
 The idea behind personality is bundle of rights &
duties.
 French expression ‘sujet de droit.’- both right & duites.
Legal Provisions/Regulations –Ethiopia
Natural (or physical) persons: articles 1 to 393 of the
Civil Code.
Juridical (or legal) persons (Articles 394-549).
 Acquisition/Commencement of Physical Personality

1) In Principle: physical personality begins from birth and lasts

until death. Accordingly, the moment of birth is the time
which determines the beginning of personality. Only birth
is enough unlike some legal systems + Viablity.
 When do we say a child is born?
2) Conception: under some exceptional circumstances a
merely conceived child may be considered as born and the
law assumes personality. (Art. 2)

1) interests of an unborn child demands recognition in

cases of succession or in heritance.
2) Live birth: If there is still birth, no need of granting
personality- b/c death preceded birth.
3) Viability/aptitude or potential to live (Art. 4)
Period of Pregnancy: Art. 3 of the Civil Code & Art. 128 of
the FDRE family code :
Legal personality: Who are they?
Government bodies (Judiciary, legislative, executive)
State itself
Business organizations (recognized in the commercial
laws)
Religious Institutions
NGOs
Associations
Endowments
Public enterprises
Legal personality: Why?/Importance
Resource mobilization

Continuity in transaction

Ease/Convenience for control

The benefit of limited liability in Pvt.Ltd.Comp.

Legal Personality: Acquisition

No uniform rule for all legal persons.

Depends on the type of the person. (E.g. State, Civil

Societies, business organizations)
You can’t assume facts.
Plagiarism results in dismissal from the quiz.
Time allotted is 0:40 Hours
Questions (20%)
Discuss the following questions:
Discuss the general principles of law.
Explain attributes of personality.
Explain hierarchy of laws and its effect in
Ethiopia.
Assume Mr. Yame has stolen his friend’s phone
and when he arrested by the police he stated that
he did not know that stealing is a crime. Should
the police send him free? Why or why not?
 Construction Law
Part III: Law of Contracts
for
Engineers!

30
 Chapter One Introduction to Contract/Law

Definition of contract
 Common Law legal systems: a promises or set of
promises for the breach of which the law gives a
remedy or the performance of which the law
recognizes in some way as a duty.
 French CC: Art.1101 as an agreement to establish, vary,
and extinguish rights and obligations of the parties.
 India: Indian contract, a contract is an agreement made
between two or more parties which the law will enforce.
 Ethiopian: Art. 1675:
“An agreement whereby two or more persons as between
themselves create, vary or extinguish obligation of
proprietary nature’’.

31
 Chapter One Introduction to Contract/Law

 For construction Contracts See the definition provided by:

Civil Code: art. 2610 vis-à-vis 3019 and the following
 See CCC, 2021, Article 464:
A contract refers to an agreement between the parties to civil
legal relations for the establishment, modification, and
termination of civil legal relations.
Every jurisdiction has its own definitional elements that are
obligatory to establish a contract.

Query:-
What are the definitional elements of a contract in Ethiopian
civil code and compare them with Chinese Civil Code of 2021.

32
 Chapter One Introduction to Contract/Law

Purpose of the contract law

Contract law is primarily concerned with supporting
institutions of exchange. Contract law in this respect is the
most important which creates smooth functioning of
business transaction by creating
 certainty,
 predictability, and
 enforceability.
 Secure the expectations created by a promise of future
performance are fulfilled, or that compensation will be paid
for its breach;
 facilitate , planning for the future transaction and to make
provisions for future contingencies;
 Establish the value of exchange- how much is paid for the
goods or services provided; 33
 Chapter One Introduction to Contract/Law

 Establish the respective responsibilities of the parties, and

the standard of performance to be expected of them
 Allocating economic risk involved in the given transaction
are in advance between the parties;
 Finally provide remedies if parties are not fulfilling their part
of obligations
Scope of Contract Law
 Contract V. Tort (extra contractual liability)
 contract law may have a general or special application depending on the
nature and origin of contractual undertakings at a given time.
 Art. 1676(1) of the Ethiopian civil code stipulated the application or scope
of general contract to apply to contracts regardless of the nature thereof
and the parties thereto.
 The general rules of contract law apply to all contracts.

34
 Chapter One Introduction to Contract/Law

 May be applicable to
 extra-contractual obligations,
 unlawful enrichment obligation, and so on.
 However, the scope of application of this law does not affect the
special provisions applicable to certain obligations by reason of
their origin or nature (Art. 1677(2)).
 in a contract, a person should:
 know the obligation he is going to carryout and the benefit
he is going to get / or lose
 agree to such obligation/ benefit
 agree that if he fails to meet his obligation as agreed the state
machinery may be used to force him to carry out his
obligation.

35
 Chapter Two Contract Formation

 In commercial agreements, there is a refutable

presumption that a contract is intended but in
social or domestic or family agreements there is a
refutable presumption that no contract is intended.
 Definitional elements of any contract (1675) V. agreements
 Validity requirements of contract:-
 Capacity: ability to discharge legal obligations
 Consent: sustainable and free
Voidable
 Object: clear, defined, legal, moral
 Form, if any by law and parties

Void
36
 Contract Formation: Capacity to contract
Capacity of persons to conclude valid contract (192ff.)
 Definition: ability to understand the consequences of
concluding contract
 Query: Does this require that a person understand
the actual terms of the contract? forming a rational
judgement as to its effect upon his interests.
 India Contract (sec. 11): Every person is competent to
contract who is of age of majority according to law to
which he is subject, and who is of sound mind, and is not
disqualified from contracting by any law to which he is
subject. Ethiopia?
 “General in capacities depend on the age or mental
condition of persons or on sentences passed upon them”

37
 Contract Formation: Capacity to contract

 while “Special in capacity may be prescribed by reason of

the nationality of persons or of the functions exercised by
them.”
 Capacity is presumed. The person who alleges too the
contrary must proof it.
 Will this be extended to the extent of presuming the
person who appears to be or clearly declared his/her
majority when asked?
See Art.315-318 of civil code
 Person who has not yet reached the age of majority is a
minor. Being a part of the minority ends the day before
hi/her birthday.

38
 Contract Formation: Capacity to contract
 Disaffirmance : In contract law, it means a refusal to be
bound by a previous legal agreement.
 Who can ratify under the Ethiopian law, when and how?
 Is disaffirmation absolute in Ethiopian law?
 There are exceptions:
 Act of necessity…..family law? See Art. 306 of the civil code Vs.
Art.292 ff. of the Revised family law
 Emancipation
 The minor benefited from the contract
 Authorization of the minor/ appears to be authorized in GF.
 Mental incapacity: does this include alcohol, drugs, insanity?

39
 Contract Formation: Capacity to contract
Issues to ponder
Disaffirmance and Loss of Value?
 In most states, if minors are unable to return exactly
what was received under the contract, they can still
get everything they gave irrespective of the loss.
 In some others, a minor must return everything in
same condition it was received or pay the difference.
Assume minor bought a Bicycle from a car retailor and
wrecked it. Can the minor could disaffirm the contract
and recover any payments made, Ethiopian Law? Would
the retailor only be able to get back the destroyed car,
Ethiopian Law?
 What if the minor retuned a shoes after using it for it’s
boring?
40
 Contract Formation: Capacity to contract

 What if this results in ‘none will contract with them’?

 After majority the minor can ratify:
 Any words or action indicating an intention to be bound by
the contract like continuing to make payments is considered
as de facto ratification.
 Ethiopian law see Art. 1810 ff. of the civil code
 Is ratification by “indication” in Ethiopian law possible?
 Legal persons: look in to their memorandum of understanding
and establishment law

 Know with whom you are dealing to avoid risks of legal

incapacity to contract

41
 Contract Formation: Consent

 A contract is mutual assent resulting from an exchange of

reciprocal declarations of intention by two or more
persons for the purpose of creating certain legal effects.
 Theories of consent:
 Theory of will/ subjective theory---French
 Theory of declaration of will/objective theory---Common Law
 Assent can be communicated by:
 Conduct
 Written
 Orally
 Sign

42
 Contract Formation: Consent

 An offer is a party's manifestation of intention to enter

into a contract with the other party, which shall
comply with the following:
 Its terms are specific and definite;
 It indicates that upon acceptance by the offeree, the
offeror will be bound thereby.
 Binding effect of contract, not binding effect offer.
 Silence does not amount to acceptance: Except (See Arts.
1682 to 1686):
 a duty to accept – a typical example in this regard is the
responsibility of companies that provide public utilities
and those that are engaged in financial services.
 a prior business relationship between the offeror and the offeree – a
case in point is an offer made by a lessee to a lessor to elongate the
contract of lease for a further period; such is also the case where an
insured requests the insurer to extend the insurance cover for
another term. 43
 Contract Formation: Consent

 an invoice based transaction in which particulars

other than the sum regarded as payment that are
not congruent with the terms and conditions of the
main contract; and
 general terms of business referring to standard

contracts that are not expressly accepted by the

offeree or that are not endorsed by the relevant
public agency.
 declaration of intention and invitation to other to make
an offer: Mere declaration – advertisements,
discounts, call for negotiations, circulation of
catalogues and price tariffs that are not expressly
directed to a designated person. See Art. 1687 and Sale
by auction – a special kind of offer whose acceptance
depends on the results of a bid that designate the
winner. Art. 1688.
44
 Contract Formation: Consent

 An offer is a party's manifestation of intention to enter

into a contract with the other party, which shall
comply with the following:
 Its terms are specific and definite;
 It indicates that upon acceptance by the offeree,
the offeror will be bound thereby.
 Specific offer except public promise of reward see Artcle.
1689

45
 Contract Formation: Consent

 Defect in consent (Art. 1696-1710):

 Mistake: - if one of the parties to a contract gives his
consent by mistake it may be invalidated. To invalidate a
contract on the ground of mistake, the mistake has to be
decisive (Art. 1697 of the civil code) and fundamental
(Art. 1698 of the civil case). However, non fundamental
mistakes relating to the motive which led the party to
conclude a contract and arithmetical mistakes cannot be
grounds to invalidate a contract.
 Fraud: fraud is another ground of invalidating contracts
which is concluded based on cheating or deceit. To
invalidate the contract on the ground of fraud the party
claiming invalidation has to prove that the other party
resorted to deceitful practices so that he would not have
entered in to the contract had he not been deceived.

46
 Contract Formation: Consent

 Duress :duress is the compelling of a party to consent to a

contract by threats of grave imminent harm to such party
of his ascendants, descendants or spouse. Elements:
 The danger to which the victim is exposed must be

clear and imminent.

 The person subject to the duress may be the

contracting party himself or those to whom he owes

support and protection.
 The coercion may be on the person, property or

prestige of the victim or those to whom he owes

allegiance.
 The form of duress may be direct, indirect, physical

or psychological.

47
 Contract Formation: Consent

 The person exercising the duress may be one of

the parties to the contract or some other person
who coerces the victim to enter into the contract
with or without the blessing of that party.
 False statements: knowingly (intentionally) or without
give being indifferent whether it be true or false (reckless)
or negligently (Art. 1705)
 Threat to exercise one’s right: if only if it is so excessive

that the party availing himself of such threat has

made an undue advantage against the other party.
 Reverential fear (Art. 1709): The threatening person is

playing against the psychological (mental) feeling of the

threatened person.
 Conscionable: senility, manifested business in

experience, and high want 48

 Contract Formation: object

 definition of an object:
The object of contract is the obligation it creates: may
be to give, to do, or not to do.
The law provides that the object of contract should be
sufficiently defined, possible and lawful and
moral. Sufficient definition requires the parties’
obligation to be stipulated in enumerative,
unambiguous and clear manner not to make the
contract of no effect. The obligation of the parties has
to also be possible humanly- it should not be
impossible absolutely.
 Freedom of object Vs. Limitations of freedom of object
 Historical: in-equality of bargaining power of parties,
social justice

49
 Contract Formation: Form

Form refers to the manner in which the contract is made.

It is not an essential element of contracts because the principle
is contract could be made in any form (oral, written, conduct,
sign). Exception: when the law requires and Parties can also
stipulate special form.
When the law requires written form, the contract has to be
signed by the parties and should be attested by witnesses.
A. Contracts that Must be in a written form by the law:
Contract of guarantee (Art. 1725 (a)
Contract of insurance (Art. 1725 (b)
Contract of marriage
Partnership contract
Pledge for a loan exceeding 500 birr (Art. 2828 (2)

50
 Contract Formation: Form

Sale and mortgage of business

Promise of sale and preemptions (Art. 1412)
Agreement prohibiting assignment or attachment of a
certain this (Art. 1430)
 public administrations and
any other contract which other law provide it should be
formed in written form.
B. contracts required to be made in writing by the parties
C. Preliminary contract (Art. 1721)
A contract that intends to lead to another contract shall
be made in writing if the contract to which it leads is
required to be made in writing either by the law or the
parties. 51
 Contract Formation: Form

Effects of essential elements of contract

Generally a contract that misses any of these elements is
either voidable (if missed Capacity or Consent) or
void (is missed object or form).
voidable contract is a contract that has begun to produce
effect intended by the parties carrying with itself certain
birth defects that may destroy the effect it has produced.
Void contract is a contract which parties intend to
produce binding effect but does not actually have
any legal effect. The obligation intended by the parties
does not exist from the beginning. So, it is called void
abinitio.

52
 chapter three: Effects of contracts

1. Meaning of Effects of contract: law

 Sanctity of the contract. = “pacta sunt servanda”: promises
must be kept
2. Interpretation of Contract terms: When? if it is
 vague,
 silent,
 illogical,
 ambiguous, and
 content is contradictory.
 If it is clear, there is no need to interpret (Art 1733).
Why do we interpret contracts to find the intention of the
parties?
To seek the intention of the parties, who are legislature of
the contractual terms and conditions. 53
 Effects of contracts

Searching Intention of Parties

 Presumption of Good Faith: (Art. 1732)- no party to the
contract intends to deceive the other party by intentionally
making the provision of the contract vague, ambiguous,
silent or contradictory.
 Techniques to arrive at the probable common intention
of parties at the time of conclusion of the contract.
 Context of the contract: meaning of terms should be searched
from the contract itself (Art. 1736(1)
 Positive interpretation: Parties are presumed to have entered into
a contract expecting certain result. So every provisions of a contract
should also be given effect.
 Conduct of the parties: may be shown before, during or
after the conclusion of the contract (Art 1734(2).

54
 Effects of contracts

 Business practice: As indicated under Art. 1713 and 1733

business practice is part of contract. So if there is no clear
provisions that excludes it, it will be used to give a meaning
for ambiguous or vague (general) terms (Art. 1735, Art. 1736
(2).
 Good faith : Here good faith indicates the innocent
expectation of a party from a contract (Art. 1735). This is in
accordance with the golden rule, “had I been in the position
of my opponent what would I have expected from the
contract?”
 Equity???
 Rules of last resort: the court is unable to know the intention
 Interpretation in Favor of Debtor (Art 1738(1)
 Except the contract is gratuitous, (Art. 1739).
 adhesion contract against the party who prepared such contract
(Art. 1738(2) Known as contra proferentum
55
 Effects of contracts

3. Performances of Contracts (Art. 1740-1762)

 Who Performs Contract (Art. 1740)
The debtor must perform in person: where it has been
agreed to that effect and where the performance of the
debtor is important to the creditor.
The second condition depends on the nature of
contract. Where the obligation relates to the payment
of money or delivery of a thing, it makes no difference
whether the creditor receives the money or the thing
directly from the debtor or a third party.
 where the obligation of the debtor is to do something,
his skill or qualification is involved: must perform
personally because the creditor may attach
importance to the skill or qualification of the debtor.
56
 Effects of contracts

3. Performances of Contracts (Art. 1740-1762)

 Who May Receive Payment Art. 1741 -Payment shall
be made to :
 the creditor or
 a third party authorized by
 the creditor,
 by the court or
 by law to receive it on behalf of the creditor
(guardian, trustee or any other person designed by
law to receive).

57
 Effects of contracts

3. Performances of Contracts (Art. 1740-1762)

Art. 1743 - Payment to unqualified person
In principle, if you make payment to unauthorized person,
your payment is not valid.
Except: the principle in any one of the following conditions:
if the creditor confirms it;
if the debtor proves that the payment has benefited the
creditor;
if the payment is made in good faith to a person who
appears to be the creditor e.g. Comes with valid certificate
of succession or I.D.

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 Effects of contracts

3. Performances of Contracts (Art. 1740-1762)

 What to Perform (Art. 1745 – 1751)
Art. 1745 - Identity of the object
The creditor shall not be bound to accept a thing other than that due
to him notwithstanding that the thing offered to him is of the same or of a
greater value than the thing due to him.
Art. 1747 - Fungible things
• Unless otherwise agreed, the debtor may choose the
thing to be delivered where fungible things are due but
not to offer a thing below average quality.
• Where the debtor had undertaken to deliver a definite
(specific, identified) thing, he must deliver the exact
thing. Delivery of a different thing does not release him
Irrespective of its value: the same or greater
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 Effects of contracts

3. Performances of Contracts (Art. 1740-1762)

Art. 1755 - Place of payment
Payment shall be made at the place agreed.
If no: payment shall be made at the place where the
debtor had his normal residence at the time when the
contract was made.
Unless otherwise agreed, payments in respect of a definite
thing shall be made at the place where such thing was
at the time of the contract.
Art. 1756 - Time of payment
 Payment shall be made at the time agreed ,
 Where no time is fixed in the contract, payment shall be made
forthwith.
 Payment shall be made whenever a party requires the other party to
perform his obligations.
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 Effects of contracts

3. Performances of Contracts (Art. 1740-1762)

Art. 1758(1) Transfer of risk
The debtor bound to deliver a thing shall bear the risks of loss
or of damage to the thing until delivery is made in
accordance with the contract. Risk passes upon delivery.

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 Effects of contracts
4.Variation of contracts
 Variation is making amendments to the provisions of a
contract: terms and conditions
 Source: fundamental changes in circumstance that the parties
or the legislator does not want to tolerate.
 Types
 the parties contract its self (1675, 1678, see 1722: ,
 legislator (by a law issued prior to the conclusion of such contract
or by a law that is enacted to modify certain already concluded
contracts)and
 Judiciary (does not have inherent authority to amend a
law unless the legislator expressly delegate (Art.1763-
1765)) in to be exercised in accordance to the limitations of
Art.1766-1770 indicates the limits of delegation and guidelines
to exercise such delegation.

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 chapter three: Effects of contracts
I. 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.
 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 and
normally live by financially supporting each other.
II. Contract with public administration
 entering into a contract with gov’t would have been a very risky
transaction in the absence of special protection.
 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.g. tax, currency devaluation,
restrictions etc.
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 Effects of contracts

III. Partial Impossibly of Performance (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.
IV. Grace Period (Art. 1770)
 Court may also extend time of performance for a maximum
period of six month (Art.1770). Except:
 Agreed other wise

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 Effects of contracts

 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 is given i.e. if notice is given the creditor may deny the
debtor to benefit from grace period by unilaterally canceling
the contract. (See Art 1774, 1786, 1787)

What if the contract with all these effects is breached

partially or fully?

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 Chapter IV: Remedies of Non-performance

Non-performance/ Breach:
 any deviation from the contract unless justified or
 failure to perform contractual obligations in conformity with
the terms of the contract and the law.

Pre-condition
Default notice:
 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 see Art.1772:
“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.”
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 Remedies of Non-performance

 no formal requirement for default notice: writing, orally or clear

conduct. What is crucial is an unambiguous, clear expression of
the creditor’s intention to obtain performance of contract
 creditor shall fix a period of time with in which he accepts
performance, or warn after the expiry of which he will not
accept performance (Art. 1774).
 Default notice is not Required if (Art.1775):
 negative obligation/ to refrain,
 performed only within a fixed time and the debtor fails,

 the debtor communicates his refusal to perform in writing

 parties have in their contract excluded the giving of default

notice
If one fails to put in default: costs

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 Chapter IV: Remedies of Non-performance

Remedies of Non performance

Contractual (1896
ff) Legal (1771 ff)

Liquidated punitive
forced Perfor-
Cancellation Damages
mance (1776-

Specific

substituted Judicial Unilat-

eral
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 Remedies of Non-performance

Remedies are two: contractual and Legal

I. Contractual Remedies the parties may stipulate
contractual remedies for breach, for example by
incorporating penalty clauses. These kinds of remedies
may be enforced by the law (see articles 1889-1895).
II. Legal remedies are provided by the law to protect the
interest of the party that is affected by non-performance.

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 Remedies of Non-performance

1. Forced performance: refers to a case where the debtor

may be forced by the court to carry out his obligation
specifically as agreed or cover the costs if the duty is
discharged by third party.
The court may force the debtor to deliver, to pay, to do or not
to do as agreed. Specific performance is not ordered
whenever the creditor requests the court, Art. 1776. provided
that:
 The first condition is that the creditor must show (prove)
that he has a special interest in the performance of the
debtor : something unique, such as a rare work of art that
cannot be obtained elsewhere, or where the loss suffered
cannot be measured in money, and there is no another
remedy that is adequate

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 Remedies of Non-performance

 The second condition is that the enforcement must be carried out

without affecting the personal liberty of the debtor.
e.g. Contract of employment may not be the object of specific
performance. Forcing a person to work for another is the same as slavery.
The court may order monetary compensation to the injured party.
• Most of the time in connection with delivery of goods, specific
performance may be considered normal because the interest at stake is
property rather than liberty.
2. Cancellation of contract : can be either
• Judicial ( with the order of the court) or
According to Art.1784, a party may move the court to cancel the contract
where the other party has not or not fully and adequately performed
his obligation within the agreed time. A contract may be cancelled only if
a fundamental provision of a contract is breached. It has to affect the
essence of the contract.
• Unilateral (one party can cancel ):

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 Remedies of Non-performance

1. cancellation clause in the contract. Article 1786 reads as:

A party may cancel the contract where a provision to this effect has been
made in the contract and the conditions for enforcing such provision are
present.
2. the debtor has failed to honor certain time limits: the debtor’s
failure to perform his obligations within the time limits set by the cross-
referenced articles 1770 (i.e period of grace), 1774 (I.e period fixed in the
default notice), and articles 1775 (b) (obligations that are such that they
must be performed within the time fixed) would entitle the creditor the
contract unilaterally.
3. performance becomes impossible. Article 1788 : A party may cancel
the contract even before the obligation of the other party is due where the
performance by the other party of his obligations has become impossible
or is hindered so that the essence of the contract is affected. It was possible
at the time of the making of the contract but which becomes impossible
afterwards. This is usually referred to as intervening impossibility,

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 Remedies of Non-performance

4. anticipatory breach of contract (Article 1789):

A party may cancel the contract where the other party
informs him in an unequivocal manner that he will not
carry out his obligations under the contract.0p
The party who intends to cancel the contract shall place
the other party in default and the contract shall not be
cancelled where the party in default produces with in
fifteen days securities sufficient to guarantee that he will
perform his obligations at the agreed time.
Notice shall not be required and the contract may be
cancelled forthwith where a party informs the other party
in writing that he will not perform his obligations.

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 Remedies of Non-performance

If a contract is cancelled, the parties are reinstated in

the positions which would have existed had the contract not
been made. This is the affect of cancellation. The thing sold
is returned to the seller and the money paid is refunded to
the buyer. Sometimes, this process is called restitution.
3. Compensation or damages : may be awarded to the
injured party independently or in addition to other
remedies.
The purpose of adequate (sufficient) compensation is to
re-establish that balance that was disturbed by non-
performance: non-performance has caused the creditor to
suffer some economic loss not to punish the debtor.
Pursuant to Art.1791, a party who fails to perform his
obligations shall be liable to pay compensation even
though he is not at fault.
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 Remedies of Non-performance

Force majeure is an event or occurrence which takes place

after the contract and that prevents you from carrying out
your obligation. It is something beyond your control or
something for which you are not responsible.
According to Art.1792, force majeure results from an
occurrence which the debtor could normally not foresee
and which prevents him also lately from performing his
obligations.
It has to be remembered that force majeure relieves the
debtor from pay compensation for delay or non-
performance but he/she has to perform his obligation as
per the contract.

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 Extinction of contracts
Formed contract creates obligation of proprietary
nature among the contracting parties.
These obligations rarely exist forever without being
extinguished.
Extinction of obligation connotes the stoppage of
already existing obligation by:
performance,
 invalidation,
cancellation,
termination,
novation,
set off,
 period of limitation of a contract, and merger as
grounds of extinction of obligation.
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