31 January 2012 Written by  Wondwossen Wakene

Non Performance of Administrative Contracts

One of the points where contracts prove to be laws and not mere agreements is upon non performance. Contracts are not mere agreements because upon non-performance they have legal effect- an effect sanctioned and enforced by the law.

We speak of non- performance only when the obligations undertaken by the parties are not executed. Otherwise performance extinguishes obligations. If obligations are not performed in accordance with the spirit and letter of the contract then the non-performing party will be, as the case may be forced to personally perform or to pay damage to neutralize the costs of non-performance. These are not the only consequences of non-performance. Let us consider the effects of non-performance under our law.

2.3.1 Effects of non-performance

Depending on circumstances, a contracting party is entitled to take measures independently or cumulatively. What are the measures under the law? As per Art.1772, requiring the enforcement of the contract or the cancellation of the contract as of self help is authorized. “In addition,” it is also possible to require compensation for damages sustained because of non-performance.

But these rights under Art.1771 should be preceded by one condition of the law and that is giving notice. Let us briefly consider these rights under the law.

2.3.1.1 Notice

Even though the special rules that regulate non- performance of administrative contracts only presume and do not clearly prescribe the necessity of putting a non-performing party in default with notice the general rules that regulate contracts regardless of their genre emphasize on the necessity of giving notice. Before considering basic issues that circumvent notice let us discuss the importance of giving notice.

As a matter of law default notice puts the non-performing party in default. The notice in this sense is an indispensable proof of the intention of the non-performing party. Notice plays this role because it helps the performing party to solicit the real intention of the party to be put in default.

Not less important, notice signifies the right time to determine transfer of risks. Date of notice denotes the date of transfer of risks.

If so, the law prescribes in favor of default notice as a condition to be complied with in case one is going to implicate a non- performing party to this end that he/she is not performing. Art.1772 underlines the issue as:

“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 his obligations under the contract”.

This being the rule, Art.1775 excepts the general requirement of notice under Art 1772. On the face of the situations envisaged under Art.1775, the law withdraws the requirement of giving notice Generally, we have four conditions under Art.1775 If the obligation is to refrain from doing something, if the obligations assumed are those to be carried out within a fixed period of time and when they are not carried out within this fixed period, where the debtor clearly shows in writing his/her intention not to perform or when the parties have an agreement not to give notice then the law out rules the importance of giving default notice.

What does the picture look like in the empire of administrative contracts?

Art.3196 for example mentions notice only occasionally while it is prescribing about “interest for delay”. That is why initially we said administrative contract rules presume and only presume but do not legislate on notice issues. This clearly shows that the general rules of notice are applicable by default no matter what form the contract takes. Even in the absence of the inference we made, the master draftsperson’s commentary on the subject matter makes the point clear. As such he held “Articles 3194-3200 present us Articles 1771-1805 by further elaborating and innovating them”. None the less, Art. 1775 inspires us about the contract that will possibly determine the fate of default notice. With the exception of Art.1775(c) the other provisions under Art. 1775 are inspiring of the content factor.  Another instance where default notice is mentioned, in the mean time of course, is Art.3198. These two occasions under Articles 3196 & 3198 are indicative of the effectiveness of the general provisions of contract.

But notice that the terms of the contract will however determine the necessity or other wise of notice.

Example

The Ministry of Agriculture has recently entered into a contract with a Chinese construction company to construct a “Millennium Hall” to be operative upon the beginning of the new millennium by entertaining on this first day a big music festival. Unfortunately the company was incapable to do so. Rather if given three months the engineers are pretty sure to finalize the work. They know this standing on 1 Pagume 1999. Should the Ministry give default notice?

As a reminder let us consider some issues in lieu with notice. The first being the form of notice, the consequent will be a discussion about time of notice.

2.3.1.1.1Form of Notice

The law is not that much concerned with the form of notice Rather the motive of the law of notice is assuring the intention of the creditor in unequivocal manner. Thus if we are in every position to meet this desire of the law our notice may take any form. Art.1773. further says:

“Notice shall be by written demand or by any other act denoting the creditor’s intention to obtain performance of the contract.”

Accordingly, we may confidently say:

    1. Notice may take any form
    2. Notice should clearly show the intention of the creditor.
    3. Notice may not be given unless the obligation is due

One question worth asking however is, “Is it “important to prove notice”? Well, as was said, the form of notice and strict adherence to such form is not a question of law. However it could be a good question of fact. Stated otherwise, the law does not force us to follow one or another form. However, issues of proof oblige us to give a notice which later on can be adduced without difficulty .Therefore, for good or for bad it is wise to give default notice whenever important, in the wisest form possible.

2.3.1.1.2  Time of Notice

In general, creditors have this right of fixing a period in the notice they give. Such period puts the time frame within which the creditor expects performance of the contract. Under such notice the creditor will clearly show his intention not to accept performance after the lapse of the stipulated period. The law does not fix such a period as it does not prescribe a certain form of notice. Never the less, the law does not hesitate to attribute a minimum content to the notice. To this end such a notice is expected to be “reasonable having regard to the nature and circumstances of the case”.

2.3.1.2 Forced Performance

As a concept, forced performance denotes the possibility of physically forcing the debtor to perform the stated obligation, to deliver a property, to pay money or to undo what was done contrary to the terms of the contract. The word ‘forced performance’ implies the compelling of the debtor to discharge his/her obligation. It refers to performance directly imposed on the debtor through the execution process. Thus, it takes place through court order/judgment. However, it is important to note that the court may not order forced performance merely because the creditor has requested so. The court has the power to order forced performance or decline considering the requirements set by the law. Article 1776 provides the conditions for ordering forced performance or otherwise. It reads as follows:

Specific performance of a contract shall not be ordered unless it is of special interest to the party requiring it and the contract can be enforced without affecting the personal liberty of the debtor.

Pursuant to this provision the requirements for the application of forced performance are (1) the creditor’s special interest, and (2) the preservation of the debtor’s personal liberty. These requirements are cumulative not alternative.

The first thing that the court shall determine is whether performance is ‘of special interest to the creditor’.  The presence of special interest can be inferred from the importance of the obligation required to be discharged towards the creditor and its possibility of being discharged otherwise. If forced performance has no special advantage to the creditor, then the court may not order it.

Then, the court shall consider whether forced performance affects the personal liberty of the debtor.   A person cannot be deprived of his liberty for failure to discharge contractual obligations. Thus, if forced performance affects the personal liberty of the debtor, the court shall not order it.

The two conditions must be fulfilled for the court to order forced performance. Here are some examples. Assume, a monopolistic entity which supplies vital goods (e.g. water or electricity) or services (e.g. postal or telecommunication) to   customers cuts of its supplies. In this case the goods or services are so essential, and the customer cannot get them from other sources. Thus, it may be said forced performance is of special interest to the creditor, i.e., customers. At the same time, order the entity to provide these goods or services cannot deprive the entity’s liberty (as only physical persons enjoy liberty).  So, in this case the court may order forced performance.

In addition to forced performance, the law provides substituted performance as a remedy for non-performance under articles 1777 and 1778. Substituted performance is made at the expense and cost of the debtor.

Art. 1777. –Obligation to do or not to do.

(1) The creditor may be authorized to do or to cause to be done at the debtor’s expense the acts which the debtor assumed to do.

(2) The creditor may be authorized to destroy or to cause to be destroyed at the debtor’s expense the things done in violation of the debtor’s obligation to refrain from doing such things.

Pursuant to sub-article 1, the court may, upon creditor’s application, authorize the creditor to do or to employ third person to do what the debtor has failed to do at the cost and expense of the debtor. Pursuant to sub-article 2 the creditor may be authorized to destroy or to employ third person to destroy the things done by the debtor in violation of his obligation not to do such things. The cost and expense of such destruction shall be borne by the debtor. Court authorization is, however, indispensable for substituted performance. With out such authorization, the creditor can not recover the costs and expenses from the debtor.  Articles 2330 and 2333 on law of sales are in the same line with concepts under Arts.1776 and 1777(1). Under Art. 2330, the buyer may not demand forced performance in conditions where purchase in replacement is possible for the buyer. The same is true for the seller when the buyer refuses to take delivery and pay the price. Here, the seller may not demand forced performance in circumstances a thing in respect of which a compensatory sale is imposed by custom.

Sub article (2) of this provision confirms substitute performance of obligation not to do.  The creditor can destroy or get destroy the things made in violation of the obligation to refrain from doing such things with court authorizations at the debtors expense.

Article 1778 also deals with substituted performance in respect of obligation to deliver fungible things. It reads:

Where fungible things are due, the creditor may be authorized by the court to buy at the debtor’s expense the things which the debtor assumed to deliver.

Where the fungible things are due the debtor may have substituted performance be made up on court authorization to buy the thing at the debtors expense.

The provisions of Articles 1779-83 are also aspects of substituted performance but they apply in different circumstances. When the debtor is ready to perform but unable to discharge his obligation either because the creditor refuse to accept performance or the creditor is unknown or uncertain or where delivery cannot be made for any reason personal to the creditor. In all these situations, the debtor has no fault; ready to perform but prevented from performing. Thus, the law allows him to discharge his obligations by depositing the thing or money at such place as instructed by the court. This will relieve the debtor from his obligations. However, the deposit shall be made upon court order and the debtor shall obtain a court confirmation as to the validity of the deposit.

The issue of forced performance is sensitive because it involves the physical coercion of a personality. The jurisprudence behind it emphasizes that contracts are not servitudes so they should not go to the extent of subjugating the personal liberty of a person. The concern therefore is freedom, the fear being making the debtor the slave of the creditor.

Therefore, forced performance is a situational remedy available if certain conditions are met.

Art.1776

Unless the performance in that way is of special interest to the party requiring specific performance and unless the contract can be enforced without affecting the personal liberty of the debtor, the court cannot order the specific performance of a contract.

Two conditions in a cumulative way should be fulfilled if the court is to order specific performance.

In no case however forced performance can exist as an instance of self help. This one should be taken as a third condition.

When thinking about specific performance, we have to think of a court weighing circumstances on the basis of Art.1776.

Turning to administrative contracts we have Art. 3114. As of rule, Art.3194 (1) says “the court may not order the administrative authorities to perform their obligations.” As of prerogative, Art 3194(2) provides administrative authorities with the choice of paying damages or performing their obligations.

What is wrong with forcing administrative authorities to “institutionally” carry out their obligations? Does it amount to subjugating their liberty? What is their liberty?

Under Art.1776 the nature of the obligation determines the order of the court. If the obligation is to be carried out and if this is to the special interest of the creditor and if carrying out the obligation does not jeopardize the personal liberty of the debtor the court shall order the debtor to personally carry out the obligation.

The “personal liberty” requirement cannot be extended to administrative authorities at least for two reasons. In the first place administrative authorities have “institutional” not “personal” trait and the law speaks of “personal liberty”. In the words of John Salmond, not all the rules that apply to natural persons need be extended to corporations. Secondly, the law under Art.3194 (2) tacitly admits that the performance of an obligation by the administrative authorities does not jeopardize their liberties. The law puts the performance of obligations at the mercy of the administrative authorities.

Is Art 3194(1) amenable to manipulations? For example assume Ethiopian Roads Authority signing an agreement with BXC Construction Company on the terms that ERA will cover the costs and fees of the work while BXC Co. undertakes the obligation of designing the work, supplying construction materials and workman and constructing a bridge. ERA fails to cover the costs and fees. Can BXC Co. apply to the court requiring the same to order forced performance? Why? Why not?

Art. 3194 is operative on the assumption that administrative authorities are debtors. What if the contractor is the debtor? Can we force him to perform the contract personally?

Last modified on Wednesday, 02 May 2012 13:05