Study Guide on Extinction of Obligations
📜 Law of Contract II
An Infographic Study Guide on Extinction of Obligations
Chapter 1: Extinction of Obligations
The study of contract law involves understanding not only how contracts are formed and performed, but also how they come to an end. This section explores the various ways contractual obligations can be extinguished under Ethiopian law.
What is Extinction of Obligation?
- The stoppage of an already existing contractual obligation.
- Means the contractually created obligations no longer exist.
Grounds for Extinction (Civil Code Art. 1806 & 1807)
✅ Performance
Fulfilling contractual terms.
🚫 Invalidation
Contract made ineffective due to formation defects.
❌ Cancellation
Contract made ineffective due to non-performance.
🛑 Termination
Ending a contract by agreement or law, often for future obligations.
🔄 Novation
Substituting an old obligation with a new one.
➖ Set-off
Mutual debts extinguishing each other.
⏳ Limitation
Expiry of the period to enforce an obligation.
🔗 Merger
Debtor and creditor becoming the same person.
1.1 Performance of Contract
Performance is the most natural way for a contract to end. It signifies that the parties have fulfilled their promises.
- Definition: Fulfilling the terms of the contract as agreed upon and in legal conformity.
- Effect: Extinguishes the contractual obligation.
- Key Point: Performance must be exact. Delivering something different (e.g., a Vitara instead of a Mercedes) does not extinguish the obligation.
1.2 Invalidation and Cancellation
Invalidation and cancellation are two distinct legal mechanisms that render a contract ineffective. Understanding their differences is crucial.
Invalidation of Contract
Meaning: Making an effective contract ineffective due to a problem in its formation.
Grounds for Invalidation (Defects in Formation):
- Lack of capacity of a party.
- Lack of sustainable consent (e.g., mistake, duress, fraud).
- Unlawful or immoral object of the contract.
- Contract not made in the prescribed form.
- Object not sufficiently defined or impossible.
Effect:
- Restitution: Parties are put back to the position they were in *before* the contract was formed.
- Compensation might be ordered to achieve this restitution.
Entitled Parties to Invalidate (Art. 1808 C.C.):
- Generally: The party affected by the defect.
- Legal representatives (e.g., tutor for a minor).
- Any contracting party or interested third party for unlawful/immoral objects or form defects.
Time Limitation (Art. 1810 C.C.):
Action must be brought within two years from the disappearance of the ground for invalidation.
Exception (Unconscionable Contract): Two years from the making of the contract if the injured party is of age.
Cancellation of Contract
Meaning: Making a contract ineffective due to non-performance by one of the contracting parties.
Grounds:
- Non-performance of the contract.
- Condition which results in cancellation.
Effect:
- Restitution: Parties are put back to their pre-contractual state.
- Compensation: Additionally entitles the party to compensation that rewards the benefit of the contract (i.e., puts them in the position they would have been had the contract been performed).
Key Differences: Invalidation vs. Cancellation
| Feature | Invalidation | Cancellation |
|---|---|---|
| Ground | Defect in the formation of the contract. | Non-performance of an already valid contract. |
| Effect | Restitution (pre-contractual state). | Restitution + Compensation for benefit of contract. |
| Nature | Renders a defective contract ineffective. | Renders a valid contract ineffective due to breach. |
Void vs. Voidable Contracts (Ethiopian Law)
The terms "void" and "voidable" are fundamental in contract law, indicating the legal status and enforceability of an agreement.
Void Contracts
- Have no legal effect from the very beginning.
- Examples: Unlawful/immoral object, impossible object, not in prescribed form, object not sufficiently defined.
- Are "of no effect by law" (Arts. 1714(1), 1715(2), 1716(2), 1720(1) C.C.).
- The teaching material questions the need to "invalidate" void contracts, as they create no effective obligation to be extinguished.
Voidable Contracts
- Are potentially effective but can be made ineffective at the request of the affected party.
- Grounds include defect in consent or incapacity of one party.
- Unless invalidated, they are upheld and become effective.
Important Note:
The teaching material highlights a potential contradiction in Ethiopian law where Article 1808(2) seems to suggest "invalidation" for void contracts, even though they are arguably ineffective from the outset.
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