CHAPTER THREE;

The law of contracting in Ethiopia

Prepared by :Emebet. A
 Code Vs non-code legal system
 Substantive Vs Procedural laws

Civil Vs criminal law
 Ethiopian legal system and hierarchy
(Refer on your handout::)
 Construction Contracts
 Construction Contracts are mainly governed with:

-Civil Code
 Was effective since 1960 and frequently being amended
 Drafted by consulting major continental Europe codes (France, Swiss, Greece,
Italy) Egypt, and to some extent practices of common laws
 -Civil Code
Has five books
 Book I : deals with “persons”
 Book II: deals with “family succession” (replaced by a new
version)
 Book III: Deals with “goods”
 Book IV: Deals with “obligations”
 Book V: deals with “special contracts”(Titles XVI, XIX,
XX)
 Commercial Code
 Book III (Title III)
Important Contract Articles and
Some Laws:
◦ Article 1953: Option to Substitute Third Party
◦ Article 1976: Principle of Delegation
◦ Article 2031: Professional Fault
◦ Article 3039: Warranty Due by the Contractor
◦ Article 3282: Warranty in respect of defects of construction
◦ Article 315(2): Arbitration (Civil Procedure Code)
◦ Some Public Body Establishment Proclamations:

◦ Resolve Disputes Out of Court

 Contract:

Ethiopian Civil Code

Article 1675 Contract defined
◦ Is ‘an agreement between two or more persons as between themselves to create,
vary or extinguish obligations of a proprietary nature’ (art. 1675 of CVC 1960)
 Over view of contract
◦ In general, a Contract is
◦ An agreement or willful promise between two parties
◦ Legally enforceable at law for both parties
◦ Obligations to be distinct from those required by law.
◦ “Enforceable at law”law means that if the agreement reached
between the two parties breached (deviations occur from the
promises) by one of the parties, the aggrieved party may bring
a legal action against the other to demand the enforcement of
its rights with the support of law.
◦ However, not all agreements or promises are contracts, Some
may lack enforceability at law.
 Over view of contract
◦ The general Law of Contract is governed under the Civil Code from Article
1675-Article 2026.
◦ A contract is
◦ An agreement whereby two or more persons as between themselves
create, vary or extinguish obligations of a proprietary nature ( Article
1675 of the Civil Code).
◦ The definition contains the following elements:
◦ the contract is an agreement;
◦ The agreement is to be made between two or more persons;
◦ the agreement is binding between such two or more persons;
◦ The agreement is to create, vary & extinguish obligations;
obligations
◦ The agreement is to create obligations;
◦ That the nature of obligations is proprietary.
◦ Contract can be between
◦ Individuals
◦ Businesses/public institutions
◦ Businesses/public institutions to individual
◦ Contracts can be of:
◦ Civil,
◦ Commercial,
◦ Industrial (labour relation),
◦ Economic (construction contract) or
◦ Others.
◦ Contracts can be
◦ Bilateral or unilateral
◦ Bilateral:
Bilateral obligations on both parties
◦ Unilateral: a promise made by one party in return for
the performance of an act by the other party

◦ Executory or executed
◦ Executory:
Executory a contract that has not been fully performed.
◦ Executed: a contract that has already been performed.
◦ According to Article 1678 (Elements of Contract)
Contract of the Civil
Code:
◦ No valid contract shall exist unless
a. The parties are capable of contracting and give their
consent sustainable at law.
b. The object of the contract is sufficiently defined and is
possible and lawful.
c. The contract is made in the form prescribed by law.
◦ The following are the fundamental elements of contract:
◦ Capacity of the contracting parties;
◦ Consent of the contracting parties;
◦ Object of the contract; and
◦ Form of contract, if any;
Capacity (Article 1678(a) of the Civil Code…

◦ Capacity means competence to enter in to a legally binding

agreement.
◦ Parties entering in to an agreement or contract shall,
therefore, be capable of contracting.
◦ Legal capacity is of two types:
types
i. Personal (Own) capacity and
ii. Representative(Agent) capacity.
◦ Capacity of persons is legally presumed unless the
contrary is proved.
Capacity (Article 1678(a) of the Civil Code…

◦Persons could be:-

◦ Natural (physical) persons or
◦ Juridical (legal) persons
◦ Natural Persons
◦ Natural or physical persons are human
beings.
beings
◦ Their legal capacity is determined by
law.
 Capacity (Article 1678(a) of the Civil Code…
◦ Legal Persons
◦ Legal persons are of two types in terms of determining their coming in to
being & their legal capacity:
◦ By legislation (In case of public bodies)
◦ The existence of public bodies (Ministries, Commissions, Bureaus,
Authorities, Agencies …) & their legal capacity to enter in to contract &
bind themselves emanates from the Civil Code & the special legal
instrument (legislation), which establishes that specific public body.
◦ By registration (In case of non-public bodies)
◦ The legal capacity of non-public bodies (PLC’s, Share Companies,
Corporations…)
Corporations & their legal existence comes in to being by registration.
The act of registration by competent public authority confers legal
personality & therewith (limited) legal capacity to enter into contract &
bind themselves.
 Capacity (Article 1678(a) of the Civil Code…
◦ The following may not have (legal) capacity to enter in to contract &
bind themselves:
◦ Minors (under the age of 18);
◦ Companies adjudged or declared bankrupt;
◦ Judicially interdicted persons;
◦ Legally interdicted persons;
◦ Persons, whose civil rights are suspended by the judgment of the court;
◦ Non-nationals, unless permitted by law or special prerogative;
◦ Non-authorized Agents;
◦ Agents, whose Power of Attorney has been revoked;
◦ Natural persons or legal persons may enter in to contract
◦ directly by themselves (in their own capacity) or
◦ through other persons called Agents.
◦ The power of agents (i.e. their representative capacity) should
always be checked, with respect to construction project, at:
◦ The tendering stage;
◦ The negotiation stage;
◦ The contract signing stage and
◦ The Contract implementation stage.
 Capacity (Article 1678(a) of the Civil Code…

◦ A contract concluded by the person not capable under

the law may be invalidated at the request of such
incapable person, who is party to the contract.
◦ Consent
◦ Is a declared will of the individual to enter
in to contract.
◦ Is the willingness of the parties to enter in to
a legally binding relation.
◦ Consent of the intended contracting
parties decomposes in to :-
◦ Offer and
◦ Acceptance
Consent …
◦ Offer
◦ Is a proposal expressing the declared willingness of the
offer to enter in to an agreement, if the offer is accepted.
◦ Is a legal process which is a declaration of willingness or
intent to be bound by specific terms set out.
◦ Acceptance
◦ Is a declaration of will to enter in to a legally binding
contract.
contract
◦ By acceptance, a contract shall be completed, where the
offeree accepts the offer without any reservation.
…

Defects in consent:
Mistake (Art. 1697-1703 of the Civil Code) –law or fact
Fraud (Art. 1704-1705 of the Civil Code)
a false representation conduct made knowingly or
recklessly
Duress (Art. 1706-1709 of the Civil Code)
a threat of imminent danger- future or immediate
Object of Contracts
◦ Object of Contracts
◦ Stated in Article 1678 (b),
◦ Article 1711 – Article 1718 of the Civil Code.
◦ The object of contract is the very obligations of the
contracting parties
◦ For Example: in the construction contract
◦ the obligations of the Employer and the
Contractor
 The possible objects

The obligations of the contracting parties could

be divided in to two broad terms: Promises
and Considerations.
Considerations
◦ Promises and Considerations in Construction Contracts
◦ In the construction contract, the whole purpose of all parts of
the contract documents is to sufficiently define the object of
the construction contract,
contract i.e. the very respective obligations
of the contractor & the employer.
◦ In the construction contract, the obligations are the very
promises & considerations of the contractor & the employer.
◦ The contractual obligation of the contractor (i.e. Promises)
◦ What to do:
do i.e. to construct:-
• water supply dam & systems; or
• irrigation dam; or
• Hydropower dam; or
• other hydraulic structures; or
• road; or
• building; or
• other type of structures;
◦ In terms of its:-
• scope;
• quality;
• cost;
• time;
• safety; and
• Other aspects of its promises
◦
• Obligations of the Employer
• The Payment, obligation to do, or (Considerations)
and other contractual rewarding obligations of the
Employer:
• Payment obligation
• extent of contract price
• types of payment
• timing for payment
• conditions of payment
• other related issues
◦ The object of contract shall be lawful.
lawful
◦ If the contract found to be unlawful or
immoral,
immoral the legal remedy available is
invalidation of the contract at the request of
any contracting party or interested third party (Art.
1808(2) of the Civil Code).
Form of Contracts
Form of Contract under the Civil Code Article 1678 (c)
Form of Contracts
Terms of Contract

Conditions: are terms which are fundamental to the

contract and may lead to breach and/or damage.
Warranties: are terms which are subsidiary to the contract.
Can normally lead only to damages under tort (wrong
doing).
Expressed terms: are terms clearly stated in the contract.
Implied terms: are not specifically written into the contract
but are considered by the courts to be part of the contract
Exclusion clauses: These are clauses (terms) that seek to
deny liability or limit liability
 Why we need Contract?

◦ Why? to protect parties against defaulting by their contracting party, if so provide

adequate compensation:

◦ Facilitate smooth functioning of the

industry
◦ It is one way of managing risk!

◦ Most (common contracts) are meant to

share risks among parties
◦ Risk of defaulting by a contracting parties
Non performance
Default performance
Non [on time] payment
Formation of a contract
◦ What should a contract satisfy to be enforceable in front of law?
 Offer and acceptance (Agreement)
 Competent parties (Legal capacity)
 Consent to be bound
 Consideration
 Legality of the object
 Formalities
 offer
• An offer is a proposal to enter in to a legally
binding obligation. To begin with, offers must be
definite and certain.
• An offer must be communicated to the
beneficiary.
• A person will not be considered as making an
offer where he or she declares his intention to
give, to do or not to do something without
communicating this intention to the beneficiary
of the declaration
•
ACCEPTANCE
Acceptance refers to agreement to the terms of the
offer.
• The acceptance must be in exact conformity with the
terms of the offer.
• If the offree changes any terms of the offer or adds
new terms, there is no acceptance.
• Time of offer:
• An offer does not continue indefinitely. Once an
offer has come to an end, it can no longer be
accepted. Offer can be made with time limit or
without time limit. An offer may be made as to
terminate on specified date.
 Offer and acceptance
◦ Offer: An offer is an expression that one party is willing to be bound by
specific terms which are setout in the contract.
◦ According to the Civil Code, an offer or acceptance can be made:

In writing or orally
 

 By signs normally in use

 By conduct of the parties
◦ The following are characteristics of a
valid offer.
◦ These are that the offer should be:-
◦ Certain;
◦ Communicated;
◦ Unconditional;
◦ Distinguished from invitation to treat;
 Offer and acceptance
◦ A contract is complete when an offer by one party is accepted without
condition by the other party
◦ No contractual offer in the case that a party declares to be obliged but without
communicating this intention to the beneficiary of the declaration
 Offer and acceptance
◦ Termination of offer:
 Through refusal (rejection) or counter offers but not just a request for further
information
 Death of offeror or offeree
 None acceptance within the offer time or after reasonable length of time
 Failure of a condition subject to which the offer was made
 Revocation of the offer (withdrawal of offer)
Offer and acceptance

 Acceptance:
 Acceptance is a declaration of will to enter in to a
legally binding contract.
 By acceptance, a contract shall be completed,
where the offeree accepts the offer without any
reservation.
 There must be an indication of consent - i.e.
silence does not indicate acceptance
 The acceptance must be communicated to the
offeror (but doesn’t need to reach offeror) except
in some special cases:
Party is bound by law
An offer is to continue or vary an existing
contract or enter into a subsidiary one
Offer and acceptance

◦ Characteristics of Acceptance
◦ Acceptance could be conditional or unconditional.
◦ Conditional acceptance rejects the original offer made by the bidder
(offeror) & creates a counter offer or new offer by the project owner.
◦ Unconditional or unreserved acceptance of an offer by the project owner
creates a Contract Agreement between the bidder & the project owner
subject to other subsequent actions,
Consideration
◦ Consideration involves a benefit moving from the offeree to the offeror in
exchange for the promise
◦ Consideration should be:
 Of some value( fixed value or price/not for free), but not necessarily adequate
 Additional to the duty in the law
 Additional to previous contract agreements
 For a future act
Invalidation of contracts

Reasons to invalidate contrac

 Mistake
 the term ‘mistake’ is used to describe the situation in
which an ‘offer’ made by one party and its ‘acceptance’ by
the other do not actually corresponds.
the mistake must be fundamental to void the contract
( it is usually be a mistake of fact which will voids a
contract);
Not calculation/arithmetic mistakes
Mistake may have two aspects
 A tort aspect of compensation of the injured party.
A contract aspect of invalidation
Invalidation of contracts

Fraud (Deception) Cheat

 Principal or decisive fraud Vs Incidental fraud (could have contracted but at a higher cost)
 Only principal frauds can lead to invalidation of contract, incidental fraud can only lead to
compensation
 Deceit by a third party is no ground to invalidate a contract unless the contracting party knew
the fraud and took advantage of it.
 May have a three fold effect

Invalidation of contract
Compensation of injured party
Penalty under penal code
Invalidation of contracts
 Duress
 ‘Duress’ is the compelling of a party to consent to a contract by threats of grave imminent harm
to such party or his ascendants, descendants or spouse
 Impending danger may relate to life, person, honor or property
 Duress by a third party is ground to invalidate but plaintiff may have to pay for damage
 Duress can have three fold aspect
 A contract aspect leading to invalidation
 A tort aspect leading to compensation for damages
 A penal aspect leading to punishment under the Penal Code
Invalidation of contracts
False statement (Misrepresentation)
◦ Misrepresentation may be described as the making of
an untrue statement relating to fact which includes
another party to enter into contract.
◦ When misrepresentation occurs, the injured party
can either state or reject the contract. He or she can
also bring as action for either recession and
restitution or damages.
◦ Can be caused by silence
Unconscionable contracts
◦ If made by taking advantage of his want, simplicity of
mind, senility or manifest business inexperience
◦ Can’t be claimed on the sole reason that it favors one
Discharge of Contracts
◦ Performance
A construction contract will be discharged by performance on the part of the
contractor when

all the works has been completed including

maintenance during defects liability period,
the Engineer has issued all the required
certificates and
on the part of the employer when he has
paid all the payments due.
Discharge of Contracts

◦ Performance
◦ Contract should be substantially completed unless
specially required
◦ Eg. Construction contracts are said to be complete at
Substantial Completion with provisions for defect
correction within the liability period.
◦ Meaning of ‘substantial completion’ may be defined in the
Contract (for example completion of all the terms of the
contract to the required standard)
Discharge of Contracts

◦ Agreement
◦ Mutual agreement (agree to cancel the contract)
◦ By novation (the replacement of one obligation
by the other one) (to vary the contract)
◦ By accord and satisfaction (even though there is
variation to performance required)
Discharge of Contracts

◦ Frustration
◦ contract was executable at the time of agreement but subsequent events (out of
control of both parties) made it impossible (not harder or more expensive))
◦ The Ethiopian civil code deals with frustration under
force majeure.[Art.1792]
◦ Force majeure (war, earth quake, natural hazard)
Discharge of Contracts

◦ Breach
◦ (failure to carry fundamental obligations under the contract)

◦ Leads to compensation and/or termination

◦ Famous in construction as liquidated
damage
Extra-contractual liability

◦ Obligations may arise from a Law or from Contract.

◦ Extra-contractual liability emanates from the Law.
◦ Contractual liability concerns about the specific individual with whom we have
a contractual relationship, whereas, the extra-contractual liability concerns
about the general public or to any third party.  
With respect to the Construction Project or the
Construction Business there may be a practical
possibility to become extra-contractually or legally
liable towards third parties, with whom we do not
have any contractual relationship.
The Law of Extra-Contractual liability is provided
under the Civil Code from Article 2027-Article
2161 (Title XIII Chapter I).
The Law of Extra-Contractual Liability is also
sometimes known as the Law of Tort.
◦ Sources of Extra-contractual Liability
◦ According to Article 2027 of the Civil Code, there
are three sources of extra-contractual liability.
◦ These are:
◦ Liability based on fault ( Article 2027(1));
◦ Liability without fault ( strict liability) ( Article 2027 (2));
and
◦ Liability for others ( vicarious liability) ( Article 2027(3);
 Obligation and right of parties
◦ Client/Employer: are the parties (public or private) under who finance
the project is executed
 Comes up with the investment needs such as project idea, land, capital etc.
 Responsible for Project Scope Definition; Project Financing; Administration (Limited);
Organization and Risk allocations
 Usually provides the infrastructure needed
 Takes care of some of the legal constraints & permits

Right of Access to the Site

 The Employer shall give the Contractor right of access to, and possession of, all
parts of the Site within the time (or times) stated in the Contract Data.
 Permits, Licenses or Approvals
 The Employer shall provide, at the request of the
Contractor, such reasonable assistance as to allow the
Contractor to obtain properly
Client’s right
 To take out insurance
 To deduct liquidated damage for delay
 To terminate the contract up on the out break of war
complete
 To require the contractor to complete a contract
agreement
Consultant’s obligation
are professional bodies who design the project
 Change the clients project idea into economic and constructible
artifact
Make sure that design satisfies requirements
To appoint the engineer representative
To prepare payment certificate
To make variations ,if necessary
If assigned to supervise:
Look after proper execution of project
Administer the contract
Certify payment certificates
Issue provisional and final acceptance certificate etc.
Consultant’s right
◦ To exercise the authority
◦ To request a revised program
◦ To instruct test on material
◦ To instruct suspension of work
◦ To correct and modify certificates
◦ To delegate power to the engineers representative
Contractor’s General obligation
Under general obligation sub clause 8.1;
Accordance with the provisions of the Contract.
The Contractor shall provide all superintendence, labour,
materials, Plant Contractor’s Equipment and all other
things, whether of a temporary or permanent nature,
required in and for such design, execution, completion and
remedying of any defects, so far as the necessity for
providing the same is specified in or is reasonably to be
inferred from the Contract.
The Contractor shall give prompt notice to the Engineer,
with a copy to the Employer, of any error, omission, fault
or other defect in the design or Specification for the Works
which he discovers when reviewing the Contract or
executing the Works.
 Contractor’s General obligation

◦ Carry out the work with in specified time

◦ Is working for the satisfaction of the engineer
◦ To manage and control the work
◦ To take out necessary insurance
◦ Ensure the test of materials, instruct of engineer
◦ To keep the site clear
◦ To submit monthly and statement of amount due
Contractor’s General obligation

To accept instructions only from the engineer

The contractor is responsible for the safety of all
construction site
The contractor’s right
To give notice of substantial completion
To receive payment with in 28 days of receipt of
interim
To be notified appointment of the engineer
representative and assistant
Statutory bodies:
 Aregovernment bodies that looks after the project’s
compliance with the general public’s interest
Prepare a general development scheme and make sure
that the project satisfies the specified requirements .
Look after the safety, legal, commercial etc ,issues
associated with the project.
Look into the environmental, cultural and social effect
that the project can cause,
END OF CHAPTER THREE;
Thank you !!!