Cancellation denotes the situation where parties declare the cessation of obligations prematurely. This is done for different reasons. Among other things, parties resort to cancellation when one or both of the parties fail to do what otherwise they ought to do, do what they ought not to do or when one fails to deliver what he/she has to deliver for different reasons.
What can be taken as one other effect of non- performance is cancellation of the contract. Legally we have an out sourced and a self sponsored cancellation depending on circumstances. Thus cancellation may be a self- help measure when parties have previously agreed about it in their contract, where one of the parties has failed to perform his obligation within the time fixed as per Articles 1770, 1774 and 1775 or where performance by one of the parties is hindered or has become impossible. This last condition is independent of the first two because cancellation is demanded before the obligation has become due. Thus, Article 1788 holds “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”.
These above conditions authorize parties to unilaterally cancel their contracts. Unilateral cancellation should not imply cancellation solely undertaken by the party resorting to it. Far from this, there are conditions that call for the intervention of courts.
Art 1789 envisages still another probability warranting a self-sponsored cancellation of contracts.
But this self-help measure is available so far as the conditions mentioned above are fulfilled. Short of that, cancellation should be effected only upon the authorization the court. (Art.1784).
This still is not tantamount to that courts will not intervene under cases mentioned earlier before and coming under Articles 1786, 1787, 1788 & 1789. Rather, the specific instances envisaged may require the authoritative determination of courts.
The position of the law under general contracts being this, what does it say concerning administrative contracts? Basically the special rules that deal with administrative contracts do not say anything on this matter. This however may not force us to conclude that parties under administrative contracts do not have this remedy at their disposal. Far from that Art.1676 is indicative of the possibility of applying those rules on cancellation in case of administrative contracts.
In association with this discussion none the less it is worth commenting on Art.3180 which talks about “termination of contract.” We underline the worth of this because the concept under Art. 3180 is susceptible to the following proliferated interpretations:
- Taking Art. 3180 as a cancellation proviso and specially a unilateral cancellation proviso
- Taking Art.3180 as a termination proviso at face value
- Taking Art. 3180 as an invalidation clause specially when considering the Amharic version of this same Article.
A Synopsis of Invalidation, Cancellation and Termination: A cautious approach to Article 3180.
As you might have understood you clearly know by now, these three concepts are quite different concepts but they similarly signify the termination of a contractual relationship (Art 1807).
Focusing on the differences we see that cancellation implies normally and validly formed contract while termination implies the formation of another contract (note: please consider Arts. 1675 and 1819 again) in the first place. In the case of termination, we have a contract created an obligation and still a grand contract that has extinguished a contract thus ending up by having two contracts.
Invalidation means making an effective contract ineffective when it has a problem in its formation. Invalidation is related with the problem in the formation of the contract. Invalidation comes into question when one of the parties wants to be free from the contractual obligation owing to a problem in the formation of the contract.
Therefore, the mere presence of willingness of one party to have a contract invalidated is not enough and, the legally provided grounds shall also be fulfilled. Lack of capacity and lack of sustainable consent are among the grounds that render a contract invalid.
The nature of invalidation of a contract is reflected in its effect. Now that invalidation of contract takes us to the conclusion that the contract is not properly formed, the effect of contract is said to be restitution. The contracting parties are put to the place where they were before the formation of the contract.
Sometimes compensation might be ordered when a contract is invalidated. This might lead us to the conclusion that the effect of invalidation and cancellation is the same in compensation. However, the damage following from an invalidation of a contract shall aim at putting the contracting parties in a place they would have been had the contract not been formed.
Cancellation, on the other hand, is making a contract ineffective when there is non-performance. Cancellation of a contract is one effect of contract in that the contract is formed within the legally provided requirements. When one of the contracting parties fails to perform a contract the other party might cancel the contract as one remedy of non-performance of the contract. There might be again other grounds of cancellation like the condition which results in cancellation.
The other basic difference between invalidation and cancellation lies in their ground. The ground for invalidation is defect in its formation while the ground for cancellation is non-performance. This does not, however, mean that their ground is the only difference. They are also different in their effect. Even though the effect of both invalidation and cancellation is restitution, cancellation additionally entitles the party a compensation that rewards the benefit of contract.
Unless the invalid contract is invalidated, the contract is upheld and becomes effective. Even though the contract might not be performed, the remedies of non-performance will be due. Under Ethiopian law of contract anybody that wants it to be invalidated cannot invalidate a defective contract. It shall be the party who is affected by the invalid contract that can invalidate the contract. Article 1808 (1) of C.C is provided to this effect stating in its wording:
“A contract which is affected by a defect in consent or by the incapacity of one party may only be invalidated at the request of that party”
The basic reason to entitle the party that is affected by the invalid contract the power of invalidating the contract is to protect the interest of that party. The other party whose consent is not affected or who is not incapable is considered to have full information or rationality behavior. Unless he suffers from information asymmetry or was irrational at the time of the formation of the contract there is no reason to help him by empowering him to invalidate the contract.
This does not, however, mean that no one other than the party who is affected by the contract can invalidate the contract. Representative of a party who gave his consent either by defect in consent or under incapacity can invalidate the contract. Representatives of the party that is potential to be adversely affected by the invalid contract might be in a position of enforcing the rights of the party. If for example a minor enters into a contract, the minor may not necessarily invalidate the contract by himself. His tutor can invalidate it, as his tutor is his legal representative.
According to sub-Article two of this provision, however, any party is entitled to invalidate an invalid contract in the definition of this provision. Article 1808 sub Article (2) connotes that “A contract whose object is unlawful or immoral or a contract not made in the prescribed form may be invalidated at the request of any contracting party or interested third party”. This provision is not clear in its position as to a contract whose object is not sufficiently defined and whose object is impossible. Whether such contract is included under this provision is a gap to be filled by interpretation.
When we generally observe the spirit of the provisions, contracts whose object is not sufficiently defined, impossible and which do not in a prescribed form seem to be incorporated by analogical interpretation. In spite of the fact that sub Article (1) of the provision does not include a contract which is defective owing to the aforementioned grounds, its exclusion does not mean that such contracts are valid.
If such contracts are not valid, the effect of a contract whose object is invalid or immoral is the same as the effect of contract whose object is not sufficiently defined, made in a prescribed form, and whose object is not possible. Articles 1714 (1), 1715(2), 1716(2) and 1720(1) clearly show that the above mentioned grounds shall render the contract ineffective.
Capacity and consent do not, however, render a contract ineffective. These grounds, rather give one of the parties the power either to invalidate the contract or give it effect. Therefore since the grounds provided under Articles 1714 (1), 1715(2), 1716(2) and 1720(1) are similar in rendering the contract defective, it is advisable that Art.1808 (2) shall include a contract whose object is not sufficiently defined, and not possible by analogical interpretation with all the criticisms.
In addition to insufficient coverage, the provision seems to connote that void contracts are subjected to invalidation as the phrase “… may be invalidated at the request of any contracting or any interested party…” is put to that effect. Its being under the title of extinction of obligation, along with this provision also leads to the conclusion that unless void contract is invalidated, the obligation created is not extinguished. Even though this seems a logical conclusion which takes its premises from the title of Chapter 3 and Article 1808 (2), giving effect to an illegal or immoral contract is not only absurd but also in contrary with 1714 (1), 1715(2), 1716(2) and 1720(1) of the Civil code which shows that such contract shall be of no effect.
However, the concept of invalidation depicts the picture making a potentially effective contract ineffective. A contract, which is not invalidated, is required to have effect like any other contract. It is this effect of invalid contract that begs its invalidation to make it ineffective and correct the error it imposes on contracting parties. If the contract is void, however, it does not have legal effect from the very beginning.
Provisions that cover the requirements whose absence renders a contract void vividly shows the ineffective nature of such a contract. Under Article 1714- it has been vividly stated that the contract shall be of no effect by law not by invalidation if “the obligation of the parties or one of them cannot be ascertained with sufficient precision.”
Article 1715 again renders a contract, whose object is alboslutely impossible and insuperably ineffective. Similar connotations have been incorporated in Articles 1716, 1717 and these provisions in effect show that the contract is no more effective.
Noncompliance of formal requirements also renders a contract void or ineffective. We can infer this from Article 1720 in that a contract which is not made in the prescribed form is not a contract; it is rather a mere draft. From this inferred conclusion it is not illogical to infer that a contract, which is not made in a prescribed form does not have legal effect. For someone’s amusement this provision even says that it is not a contract but rather a mere draft. Invalidating an agreement which is not contract seems to be absurd.
Having the above affirmation in mind, Article 1808 seems to be in contradiction with the very nature of invalidation that is rendering a contract ineffective and with the provisions, which deal with the effect of noncompliance of the requirements. This provision is also on the grounds of extinction of obligation. Invalidation of a contract is one of the grounds. Unless a contract, which shall be invalidated, is not invalidated, the obligations created are not extinguished in the absence of other grounds. It is questionable if this is true for a contract whose object is undefined, unlawful, immoral or impossible. From the very beginning no legal obligation is created under such contracts
If it does not have legal effect there is no need to have such agreement invalidated. There is not any created obligation to be extinguished by invalidation. Such nature of void contract casts doubt if invalidation of such contract really extinguish obligation as void contracts do not create effective obligation as it has been seen before. Be that as it may the invalidation of contracts which have no effect by the function of law has been put under the extinction of obligation by invalidation.
An invalid contract can result in the extinction of contract even though it is not invalidated. Notwithstanding the fact that a contract is invalid, the reaction of contracting parties to a contract is not necessarily invalidation. Contracting parties can also resort to other options like refusing performance without having the contract invalidated.
Article 1809 denotes that a party entitled to invalidate a contract can refuse performance at any time. The contracting party can extinguish the obligation by refusing performance of a contract. Albeit the absence of the act of invalidation, the obligation will thereby be extinguished. The right to refuse performance seems, however, to be made at any time without any prescription. The basic difference between termination on the one hand and invalidation and cancellation on the other is their effect. The ground of termination is not again attributable to defect in the formation of a contract or non-performance on one of the parties. Termination can be made by agreement, unilaterally by one party or by court order. However, the grounds of invalidation and cancellation are defect in consent and non-performance in accordance to the terms of the contract respectively. In relation to the effect of the two categories as stated above, invalidation and cancellation have retrospective effect while the effect of termination is prospective. Article 1819 Sub (2) and (3) are obvious in indicating the prospective nature of termination. Quite the reverse, Article 1815 is testament for retrospective effect of invalidation and cancellation.
Invalidation, on the other hand, implies a contract that is not validly formed in the first place. Depending on cases such a contract might be void or voidable contract. Hence, lack of consent, capacity, form when required) or lack of a legal or moral object among other things may cause the invalidation of the contract. Semantically Art.3180 is about termination and still about invalidation (for the latter case it is wise to refer the Amharic Version).
But what are the real causes that set Art.3180 in motion? Let us consider the full text first:
“The administrative authorities may terminate the contract notwithstanding that the other party has committed no fault where the contract has become useless to the public service or unsuitable for its requirements”.
The existence of two independent conditions justifies the decision of an administrative authority to “terminate” a contract. One the contract should prove to be” useless to the public service” or the contract should “become unsuitable for its requirements.”
Do these remind you of Art.3170 which deals with lack of cause (object) on the part of contracts? Can you now read Art.3170 with Art.3180 and ultimately with our previous discussion on invalidation thereby referring to Art.3180 (2).