Module title: Verifying documents

Lo3: Proving free consent

3.1. Verify the identity signer and make sure that both parties are aware ramification of
the agreement

Ramification May include but not limited to:

 Consulting
 clarifying agreement
 consent
 legal interpretation

Who is a signer? Dear trainees do you remember the elements of contract? What does contract
mean and its legal effect?

Contract is a binding agreement which is enforceable by law. It is a promise or set of promises

for the breach or violation of which the law gives a remedy. Contract is an agreement intended to
produce binding obligations. An agreement which does not create, vary or extinguish obligation
cannot be considered as a contract.

Article 1675 of the civil code provides as following:

A contract is an agreement whereby two or more persons as between themselves create, vary or
extinguish obligations of proprietary nature.

What are the important elements in the definition? What are the requirements to have a valid
contract? What does the term valid contract sounds for? The word valid means legally good.
Therefore a valid contract is legally binding and fully enforceable by law. Article 1678 of the
civil code enumerates the following elements:

 Capacity
 Consent
 Object
 Form

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Dear trainees let’s focus on consent which is intended to be your competence area. Consent is an
agreement given freely, willingly, or it is an agreement which is free from any defect. The
freedom of contract is expressed in consent. How can parties express their consent? Two forms
of expressing consent exist. These are the offer and acceptance.

An offer is a definite statement by one party called the offeror, of the terms under which he will
contract. In other words an offer is a proposal made by one party (the offeror) indicating his
willingness to enter into contractual agreement regarding a particular thing. An offer typically
consists of a promise or commitment by the offeror to give something, to do something or not to
do something.

On the other hand, an acceptance is unqualified agreement of the other party, called the offeree,
to the proposal stated by the offeror.

Defects in consent (vices of consent)

Consent of the contracting parties must be free from defects. If consent is defective, a valid
contract may not be created. How does the consent of contracting parties become defective?
What are the defects that may lead to the invalidation of a contract? Article 1696- a contract may
be invalidated where a party gave his consent by a mistake or under deceit or duress. Based on
the above article there are three defects in consent

A. mistake
B. deceit (fraud)
C. duress
A. Mistake

In contract law, mistake is defined as an erroneous belief in a thing or in a fact. In order to

invalidate a contract on the ground of mistake, it must be fundamental, you cannot invalidate a
contract.

 A mistake is fundamental if it relates to the nature of a contract. For example a contract

of sale is completely different from contract of donation.
 A mistake is fundamental if it relates to the object of the contract. The concept “object of
the contract” in this context means obligation.

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  Mistake relating to the identity or qualification of a contracting party. This is another
fundamental mistake. Financial position of a person, his personal integrity, his credit
worthiness of your contracting party matters a lot.

Therefore: non-fundamental mistakes do not affect the validity of a contract. Mistakes relating to
the motives of the parties and arithmetical errors are the only mistakes considered as non-
fundamental. Arithmetical errors are errors in computation (calculation), typing errors etc.
motive is something you have in mind.

B. Fraud (deceit)

A contract may be invalidated on the ground of fraud where a party resorts to a deceitful practice
to induce another to make a contract. It is act of practice made with the intention of misleading
another. Fraud creates a wrong impression or belief in the mind of another. Concealments of a
material fact is also fraud. A party who has been deceived by a third party shall be bound by the
contract unless the other contracting party knew or should have known of the fraud on the
making of the contract and took advantage thereof. See article 1740 of c.c

C. Duress

Duress refers to compelling a party to give his consent to a contract by use of threat. The threat
must be serious and imminent harm to the party or to his ascendants, children or spouse. The
threat must be imminent or likely to happen soon. This, however, does not mean that it has to be
real. It is sufficient if it appears real. A person who gave his consent because he has been
threatened by use of an unloaded pistol can avoid the contract on the basis of duress. The pistol
might not have bullets but it is sufficient if appeared to the person threatened that it was loaded.

The threat may relate to property or person. The danger to the person may relate to his life,
health, liberty, honor or morals.

As opposed to third party fraud, third party duress would be sufficient to invalidate a contract.
Thus, if Alemu, threatened by Kassa, cocludes a contract with Berahnu, may demand the
invalidation of the contract though Berhanu, the contracting party, did not exercise it. This is due
to the fact that duress is dangerous for the social order. In the exceptional case that Berhanu, may

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not know the duress exercised by Kassa, Alemu would be required to pay damages arising out of
the invalidation of the contract for him. (Art. 1706 &1707).

When consent is not free the contract is voidable. The contract is voidable at the option of the
aggrieved party. Now meaning of the aggrieved party is the party whose will was not free, party
which has given the consent under any these four ways; either by coercion or by undue influence
or by fraud or by misrepresentation.

3.2. Attestation and signature

a. Forms of contract

Contract may be made orally or in writing. According to article 1719, contracting parties have a
freedom of choosing the form of their contract unless the law prescribes special form for certain
contracts. Sometimes the contracting parties themselves may agree to make their contract in a
special form even if the law does not prescribe a special form.

Most contracts are oral. Many are made in telephone. Others are made and carried out in a single
face to face conversation. So what are the types of contracts required to be made in special form?

Art.1721- Preliminary

Preliminary contracts shall be made in the form of prescribed in respect of final contracts.
Preliminary contracts are contracts facilitating formation of another contract. Sometimes a
contract may be concluded in order to enter into another contract. A contract that has to be
entered in order to conclude another contract is called preliminary contract.

For example, Ato Kebede a residence of Sweden desired to purchase a residential building in
Addis Ababa. As he cannot come to Ethiopia, he concluded a contract of agency with Ato Abebe
to represent him in purchasing the building from Ato Solomon.

In this example the contract of agency is preliminary contract whereas the contract of purchasing
the house is the final contract. Pursuant to article 1721 of the civil code a preliminary contract
has to be made in the form of the final contract. The contract of purchase of the house as per
article 1723 of the civil code has to be made in writing. Accordingly the contract of agency has
also to be made in writing.

Article 1722. Variations

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A contract made in special form shall be varied in the same form.

Variation is modification of terms of contracts. Variation has to follow a form in which the
varied contract was made. Thus, a written contract can only be varied where the variation
agreement is made in writing. Where the initial contract is registered the variation has also to be
registered.

Article 1723- Contracts relating to Immovable

1. a contract creating or assigning rights in ownership or bare ownership on an immovable

or a usufruct , servitude, mortgage or immovable shall be made in writing and registered
with court or notary.
2. Any contract by which an immovable is divided and any compromise, relating to an
immovable shall be in writing and registered with the court or notary.
3. Notwithstanding the provisions of sub-article (1) of this Article, a contract of mortgage
concluded to provide security to a loan extended by a bank or a micro-financing
institution may not require to be registered by a court or a notary.

Mortgage contract is a security contract that is given as security for performance of obligation. A
mortgage contract is a contract of immovable property and shall be made in writing.

In addition to the writing requirement of contracts on immovable property the law prescribes
another formality. Contracts on immovable property shall be registered. The purpose of
registration is creating public awareness. It does not affect the validity of the contract.
Unregistered contract is valid among the contracting parties but it may not affect rights of third
parties.

Art 1724-Contracts with public administration

Contracts in which any organ of public administration is party shall be made in writing and
registered. Therefore; any contract binding the government or a public administration and
government organs are party shall always be in writing and registered.

Art 1725- contracts for long period of time

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Contracts that would serve for long period of time shall be made in writing. Do you see the
importance of writing in this case? As memory of human being may fadeout, written contracts
cannot be forgotten. The following contracts shall be made in writing.

 Contracts of guarantee
 Insurance contract
 Any other contract in respect of which such form is required by law
b. Attestation

Article 1727(2) of the civil code requires all written documents to be attested by two witnesses.
The witnesses declare that they saw the contracting parties conclude the contract. The witness
does not guarantee performance of the contract and by no means liable in any way. Where
dispute arises as to the contents of the contract the witness may be called to prove it. The witness
shall be capable to enter into juridical acts. Thus the witness shall be of full age.

c. Signature

Article 1727(1)-The person bound by the contract shall sign all written documents.

The signature may be written on the document or thumb mark may be affected. Signatures by
mechanical mean’s and seals cannot be used for the purpose of signing on the documents.
Signature increases the validity of the contract. If the document has several pages, signatures
have to be affixed on all pages of the document. Do you know the requirement for?

A party that cannot write may affix his thumb mark on the document. But signature and thumb
mark of a blind cannot bind him unless authenticated. That is to say, the signature has to be
certified. Certification may be made by public offices having the power to authenticate
documents. In Ethiopia this is done by the office of document authentication and vital
registration. The requirement of authentication is to safe guarded the interest of the blind or
illiterate person.

Effects of no-compliance to the formality requirement

Where a contract has to be made in a given form, if non-compliance takes away from the
contract pursuant to article 1720; where special form is prescribed by law and not observed there
shall be no contract but mere draft of contract.

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3.3. Check Letter of representation whether the case handler is an agent

Agency is the way in which a person does legally binding act on behalf of another. Where a
person because of different reasons becomes unable to perform a given task, he/she may employ
someone to represent him/her. For instance, a trader in Axum may purchase things from a dealer
in Addis Ababa while doing his business in Axum by appointing someone to act on his own
behalf.

There are three parties in agency relationship:

Principal: a person who authorizes another person to represent him and to act in his name.

Agent: a person who makes contracts for and on behalf of another person

Third party: a person who enters in to contract with the principal by the medium of an agent.

3.3.1. Letter of representation May include but not limited to power of attorneys:
 acts of management
 special agency

Scope of Agency

The scope of the power assumed by the agent is determined by the contract-giving rise to
agency. Where the scope of the agency is not expressly fixed in the contract, such scope shall be
fixed according to the nature of the transaction to which it relates. [Art. 2202/1].

The scope of agency conferred on the agent may either be special or general as provided by Art
2202(2) of the Civil Code.

General Agency

An agent conferred with general authority can’t be permitted to carry out certain activities that
demand strict decision-making. Such type of agency is conferred in general terms. Usually, it is
expressed in terms like: all my affairs, anything related to my property, any affairs which I am
called to perform etc.

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The scope of such authorities conferred in general terms is limited only to the management of the
said affairs. It is confirmed under Art. 2203 that “agency expressed in general terms shall only
confer upon the agent authority to perform acts of management.”

In general agency, agent operates all acts necessary for carrying out, the affairs of principal. In
other words, general agency helps principal to confer acts of management. The law has
unequivocally listed down those acts which are named acts of management under Art. 2204.
These are:

 Acts done for the preservation of maintenance of property; Leases for terms not
exceeding three years
 The collection of debts
 The investment of income;
 Discharge of debts
 the sale of crops;
 the sale of goods intended to be sold; and
 The sale of perishable commodities and other similar acts are categorized as acts of
management.

Special Agency

An authority is said to be special when it is given for particular affair that may require great care
and that may affect the position of the principal considerably.

Special agency is given to matters demanding special attention and for acts other than acts of
management. It is also known as a full authority because it clearly discloses what could be done
or could not be done by agent. An agent conferred with special authority may execute all
transactions given by that contract. It helps principal by prohibiting abuse of authority by agent
under general agency.

It is provided in the form of an illustrative list under Art 2205 that these acts require a special
power. Agent may not without special authority alienate or mortgage real estate, invest capital,
sign bill of exchange, effect settlement, consent to arbitration, make donation, bring legal action
or defend it.

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3.3.2. Authorities of an Agent

An agent representing a principal should have some kind of authority. The authority may be
actual or apparent.

A. Actual authority

Actual authority is the authority which in fact the agent has been given by the principal under the
agreement or contract which has been made between them or by virtue of subsequent ratification
or by law.

Actual authority exists in two forms: express and implied. Agency is express when principal
clearly authorizes his agent to perform all acts pertaining to his affairs by words in contract.
Authority is implied when agency relationship is inferred from conducts of agent or principal
without verbal expression as it is difficult enumerate all activities in the contract and such
authority is determined having regard to nature of transaction.

B. Apparent authority

If a person is empowered to do a given task but simply appears to outsiders, the kind of authority
assumed by innocent third party is apparent authority. The agent’s authority here is the product
of the principal’s conduct, his conduct that the agent is authorized to act on his behalf. In
fact/reality, it does not exist; but as a matter of law arising out of the factual position of the
parties in the eyes of third parties. In these circumstances third parties assume that the agent has
authority to act on behalf of the principal.

Apparent authority of the agent emerges out because different causes. If an agent, for example,
has got a written document authorizing him to act on behalf of a given principal. After the
termination of agency the principal has to take back the document authorizing the agent to
represent him. If he fails to take the document back, the agent may act with the lapsed authority.
In this case, the agent actually has no power to represent, but has apparent authority. Where a
person allows another to appear as if he were his agent, whereas in fact he is not an agent,
apparent authority comes out.

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In Ethiopia apparent authority is not taken as an authority entitling an agent to act on behalf of
the principal. It does not bring agency relationship in Ethiopia.

3.3.3. Modes of representation

The agent may enter in to contractual relation on behalf of the principal in different ways. There
are three modes by which the agent may represent the principal. These are:

1. Disclosed agency
2. Partially disclosed agency; and
3. Undisclosed agency

Disclosed agency

In disclosed agency, the agent makes the representation with third party revealing the name and
identity of his principal. In this case, the third party enters in to the contract with the agent with
full understanding that the person negotiating with him is an agent and he/she is a mere
messenger of someone. It is recognized under Art 2189(1) of the civil code in such a way that the
representation of the principal by the agent shall have the effect of affecting the principal when
the agent discloses the name of the principal.

Where the existence of the principal and his name is known to the third party, and the agent acts
within his scope of power, the contract is taken as it was made by the principal directly.

Partially disclosed agency

Partially disclosed agency is the situation where the agent represented the principal on the
principal’s behalf but in the name of himself. The agent instead of disclosing the name and
identity of the principal may communicate to the third party, merely his representative character.
This is made clear by Art. 2197(1) of the C.C. This kind of agency doesn’t bring agency
relationship in Ethiopia. Thus, the third party can ask the agent for all liability arising from the
contract. Therefore, the agent will personally liable.

Undisclosed agency

In this form of representation, the agent neither discloses the existence of his principal nor his
representative character. Therefore, the agent acts on his own name and he is acting on his own

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behalf. The third party is not aware of the fact that the agent is acting to the benefit and on behalf
of another. This mode of representation does not bring any effect of agency. Yet, the person who
acts in his own name and on his own behalf shall enjoy the benefits or liabilities himself.

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