Surety under Ethiopian law

Surety under Ethiopian law

Course: Law of contracts (Laws2021)
19 documents
University: Hawassa University

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INTRODUCTION Most contractual dealings are bilateral, the parties are a single debtor and
creditor. However,this is not always the case as it is also possible to have multilateral contracts, in
which severaldebtors and creditors exist. The existence of several debtors and creditors that are
bound byand entitled to a single obligation or right creates solidarity of obligations and rights. In
suchcases, there may be multiple creditors and one debtor, several debtors and one creditor,
andmultiple creditors and debtors. Contracts with many creditors and debtors are referred to
ascontracts based on joint obligations.1When there are multiple debtors in a contract, the
obligations are either joint, several, or jointand several, depending on the intention of the
contracting parties. The intention is gatheredfrom the construction and interpretation of the
language used.2Contract based on joint obligations Is regarded as elementary one in contract law,
but itsdifficulties have received remarkably little attention in treatises on contract law or in
essays.So, in order to clarify such difficulties, this paper attempts to discuss the rules governing
theplurality of debtors and creditors under Ethiopian law. These rules are found in Book
lV,Chapter 5 of the Civil Code, from article 1896 to 1951. From article 1896 to 1909, the
firstsection of this chapter is about debtors who are jointly and severally liable. The
secondsection, which runs from article 1910 to 1916, contains rules for joint creditors. Articles
1917to 1919, third section, provide rules for obligations other than joint obligations. Articles
1920to 1951 cover the rules of suretyship, which are the fourth and similar section to
jointobligations.SECTION ONE: DEBTORS JOINTLY AND SEVERALLY LIABLE The
principle of presumption of solidary obligations has it that unless the
instrumentexpressly provides otherwise or provided by law, joint debtors are always solitarily
(jointlyand severally) liable.3 This implies that so long as the parties do not clearly state that they
arenot jointly liable they are automatically considered as joint and several debtors. The law
byitself may also impose joint obligations in various cases; to mention some, in case of debts1
contracted by spouses, for persons jointly liable to pay maintenance, persons involved in thesame
criminal act and persons required to make good the same damage.4In such cases the law gives the
creditor the right to require performance or discharge of theobligation in whole or in part from all
the debtors or one of them. And it is also provided thatall debtors are liable until the obligation is
fully discharged.5 therefore it can be said theextent of liability of each co-debtor is not limited to
his share of the debt, and there is animplied guarantee between the co-debtors as far as meeting
the claims of the creditor isconcerned.1.1 EFFECT OF JOINT AND SEVERAL
OBLIGATIONS ON RELATIONSBETWEEN CREDITOR (S) AND CO-DEBTORS Res
judicata; Proceedings instituted against one debtor may not prohibit the creditor fromresorting to
other creditors. This is a way of protection for the creditor. The creditor has theright to institute as
many actions of recourse as there are debtors for the recovery of his claim.Notice: Placing one
debtor in default notice amounts to placing all others in the same, this ishowever only where
notice is necessary.6 All effects such as computation of interest, transferof risk and interruption of
period of limitation do hold good for other co-debtors in as muchas they do with the one on whom
notice is served.Nullity; If the contract is void, any debtor can set up against a creditor defense
based on thenullity of obligation. If the contract is voidable, though, only those debtors affected by
thevitiation may do so.7Payment and limitation: All co-debtors may invoke defenses
based on full or partialperformance or on limitations of actions.8Remission of debt:
Remission of one co-debtor amounts to remitting all unless madespecifically for the
exclusive advantage of that debtor.9 In this case, the share of the debt ofthe other debtors is
reduced to the extent of the amount remitted in favor of that particulardebtor. Regarding sub
article 3 of Article 1902 the English version is not correct hence theAmharic version should be
referred as it is the one that prevails in case of contradiction
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Surety under Ethiopian law

Surety under Ethiopian law

Course: Law of contracts (Laws2021)
19 documents
University: Hawassa University

Download

contracted by spouses, for persons jointly liable to pay maintenance, persons involved in thesame
criminal act and persons required to make good the same damage.4In such cases the law gives the
creditor the right to require performance or discharge of theobligation in whole or in part from all
the debtors or one of them. And it is also provided thatall debtors are liable until the obligation is
fully discharged.5 therefore it can be said theextent of liability of each co-debtor is not limited to
his share of the debt, and there is animplied guarantee between the co-debtors as far as meeting
the claims of the creditor isconcerned.1.1 EFFECT OF JOINT AND SEVERAL
OBLIGATIONS ON RELATIONSBETWEEN CREDITOR (S) AND CO-DEBTORS Res
judicata; Proceedings instituted against one debtor may not prohibit the creditor fromresorting to
other creditors. This is a way of protection for the creditor. The creditor has theright to institute as
many actions of recourse as there are debtors for the recovery of his claim.Notice: Placing one
debtor in default notice amounts to placing all others in the same, this ishowever only where
notice is necessary.6 All effects such as computation of interest, transferof risk and interruption of
period of limitation do hold good for other co-debtors in as muchas they do with the one on whom
notice is served.Nullity; If the contract is void, any debtor can set up against a creditor defense
based on thenullity of obligation. If the contract is voidable, though, only those debtors affected by
thevitiation may do so.7Payment and limitation: All co-debtors may invoke defenses
based on full or partialperformance or on limitations of actions.8Remission of debt:
Remission of one co-debtor amounts to remitting all unless madespecifically for the
exclusive advantage of that debtor.9 In this case, the share of the debt ofthe other debtors is
reduced to the extent of the amount remitted in favor of that particulardebtor. Regarding sub
article 3 of Article 1902 the English version is not correct hence theAmharic version should be
referred as it is the one that prevails in case of contradiction.4 See Articles 819, 2155/2 and 2255.5
Art 1897.6 Art 1899 cum Arts. 1772& 1775.7 See Art 1900 cum Art 1808.8 Art 1901.9 Art. 1902
cum Art 1825.
Novation: Where the creditor agrees with one of the co-debtors to substitute a
newObligation for the original one, the provisions of Article 1902 will be applied.10Set-Off: Art.
Co-debtors may invoke the defense of set-off against the creditor only to theextent of the
obligation of the debtor who is owed by the creditor.11This article also hasproblem in the English
version, the Amharic version is much better in terms of clarity.Merger: where one debtor becomes
creditor, his share may be reduced from the total debt.12Here again the English version has a
problem. 1.2 THELATIONSHIP BETWEEN CO-DEBTORS The relationship between co-
debtors can be explained by the following four points asprovided under our civil
code.A co-debtor is duty bound to promote the betterment of the condition of all of themand
consequently should refrain from acts that increase the liability of other co-debtors. More
over a co-debtor who fails to raise common defense to all like periodof limitation is liable to the
other debtors. 13Unless agreed otherwise agreed by co-debtors or provided by law amongst the
co-debtors, shares in the debt are presumed to be equal.14 This means the fact that eachdebtor is
held liable for performance of the obligation to the creditor does not preventthe debt from being
divided.A co-debtor who has paid more than what he was actually supposed to pay as hisshare
has the right to seek contribution from the other co-debtors.15 In such situationthe presumption of
solidarity comes to an end as each debtor is only liable to hisshare in debt. However, if one of the
co-debtors cannot pay his share, his part shall beapportioned amongst the other co-debtors.16A
party paying in excess of his share and entitled to claim contribution will thereforebe substituted
with the creditor to the extent of the amount paid by him by virtue ofright of subrogation. In
such cases the creditor has the duty of collaboration by10 Art 1903.11 See the Amharic
version of Article 1904.12 Here also the Amharic version of Article 1905 should be referred.13 Art
1906.14 Art 1907.15 Art 1908 sub art 1.16 Art 1908 sub art 2.

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Laws2021
Hawassa University
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45
INTRODUCTION
Most contractual dealings are bilateral, the parties are a single debtor and creditor. However, this is
not always the case as it is also possible to have multilateral contracts, in which several debtors
and creditors exist. The existence of several debtors and creditors that are bound by and entitled to
a single obligation or right creates solidarity of obligations and rights. In such cases, there may be
multiple creditors and one debtor, several debtors and one creditor, and multiple creditors and
debtors. Contracts with many creditors and debtors are referred to as contracts based on joint
obligations. 1

When there are multiple debtors in a contract, the obligations are either joint, several, or joint and
several, depending on the intention of the contracting parties. The intention is gathered from the
construction and interpretation of the language used. 2
Contract based on joint obligations Is regarded as elementary one in contract law, but its
difficulties have received remarkably little attention in treatises on contract law or in essays. So, in
order to clarify such difficulties, this paper attempts to discuss the rules governing the plurality of
debtors and creditors under Ethiopian law. These rules are found in Book lV, Chapter 5 of the
Civil Code, from article 1896 to 1951. From article 1896 to 1909, the first section of this chapter
is about debtors who are jointly and severally liable. The second section, which runs from article
1910 to 1916, contains rules for joint creditors. Articles 1917 to 1919, third section, provide rules
for obligations other than joint obligations. Articles 1920 to 1951 cover the rules of suretyship,
which are the fourth and similar section to joint obligations.

SECTION ONE: DEBTORS JOINTLY AND SEVERALLY LIABLE

The principle of presumption of solidary obligations has it that unless the instrument expressly
provides otherwise or provided by law, joint debtors are always solitarily (jointly and severally)
liable. 3 This implies that so long as the parties do not clearly state that they are not jointly liable
they are automatically considered as joint and several debtors. The law by itself may also impose
joint obligations in various cases; to mention some, in case of debts

1 Tilahun Teshome, basic principles of Ethiopian contract law (2nd edn, Addis Ababa university,
Addis Ababa 2002) p. 199. 2 A. I. D. “Contracts: Joint or Joint and Several?” (1917) CLRC,
vol. 5, no. 2, JSTOR, doi/10.2307/3474253. Accessed 5 Jan 2023.

3 Art 1896 of the civil code of Ethiopia.

contracted by spouses, for persons jointly liable to pay maintenance, persons involved in the same
criminal act and persons required to make good the same damage. 4

In such cases the law gives the creditor the right to require performance or discharge of the
obligation in whole or in part from all the debtors or one of them. And it is also provided that all
debtors are liable until the obligation is fully discharged. 5 therefore it can be said the extent of
liability of each co-debtor is not limited to his share of the debt, and there is an implied guarantee
between the co-debtors as far as meeting the claims of the creditor is concerned.

1 EFFECT OF JOINT AND SEVERAL OBLIGATIONS ON RELATIONS BETWEEN

CREDITOR (S) AND CO-DEBTORS

Res judicata; Proceedings instituted against one debtor may not prohibit the creditor from
resorting to other creditors. This is a way of protection for the creditor. The creditor has the right
to institute as many actions of recourse as there are debtors for the recovery of his claim.

Notice: Placing one debtor in default notice amounts to placing all others in the same, this is
however only where notice is necessary. 6 All effects such as computation of interest, transfer of
risk and interruption of period of limitation do hold good for other co-debtors in as much as they
do with the one on whom notice is served.

Nullity; If the contract is void, any debtor can set up against a creditor defense based on the nullity
of obligation. If the contract is voidable, though, only those debtors affected by the vitiation may
do so. 7

Payment and limitation: All co-debtors may invoke defenses based on full or partial performance
or on limitations of actions. 8

Remission of debt: Remission of one co-debtor amounts to remitting all unless made specifically
for the exclusive advantage of that debtor. 9 In this case, the share of the debt of the other debtors
is reduced to the extent of the amount remitted in favor of that particular debtor. Regarding sub
article 3 of Article 1902 the English version is not correct hence the Amharic version should be
referred as it is the one that prevails in case of contradiction.

4 See Articles 819, 2155/2 and 2255. 5 Art 1897. 6 Art 1899 cum Arts. 1772& 1775. 7 See Art
1900 cum Art 1808. 8 Art 1901. 9 Art. 1902 cum Art 1825.

handing documents and information in relation to the debt, but if he fails to do so he will be liable
for the damages resulting from his failure. 17

SECTION TWO: JOINT CREDITORS

The civil code unlike the case of joint debtors does not presume solidarity rights. Unless agreed or
provided by law joint creditors are not presumed to be Jointly and severally entitled to claim
payment. 18 The instrument that created solidarity of creditors is always required to clearly show
prevalence of solidarity in order for the creditors to enjoy this right.

The right of the creditor is not only limited to his own share of the whole claim, as far as their
right to claim against the debtor is concerned there is an implied duty between the co- creditors.
For his share of the claim each co-creditor is regarded as the principal creditor and for the shares
of the other creditors, he is considered as an agent.

Each joint creditor can ask the debtor to pay the whole debt. And payment made in part or whole
to one of the creditors is effective against all the creditors. The debtor in performing his obligation
have the right to pay to any of the creditors so long as he is not expressly instructed by one or
some of the creditors. 19

2 EFFECTS OF PLURALITY OF CREDITORS

a. Interruption of limitation of action; any act interrupting the period of limitation made by one of
the creditors benefits all. 20 b. Remission of debt; remission made by one co-creditor only release
the debtor in respect of the share of remitting creditor. Hence it does not affect other co-creditors.
21 c. Novation; novation agreement made between one of the creditors and the debtor does not
affect the right of the others. 22 d. Set-off; where the debtor is owed by one of the creditors, he
may invoke a set-off only to the extent of that creditor’s share without affecting right of the other
creditors. 23

17 See Art 1909. 18 Art 1910. 19 See Art 1911 20 Art 1912 cum Arts 1851 and1852. 21 Art 1913.
22 See Art 1914 cum 1913 23 Art 1915.

The above three cases serve as limitations for the power of each creditor to act as an agent or to
represent the other joint creditors.

2 THE RELATIONSHIP BETWEEN CO-CREDITORS

The law expressed the relationship between co-creditors in two cases. The first one is the case of
Presumption of equality of shares; unless specified in the contract or provided by law joint
creditors are presumed to be entitled to an equal share of the payment made by the debtor. The
second one is a joint creditor who received more than his share is obliged to distribute the excess
to the co-creditors in proportion to their respective shares. 24

SECTION THREE: SIMPLE JOINT OBLIGATIONS (NONE JOINT OBLIGATIONS)

Plurality of debtors and creditors alone does not always bring about solidary obligations and
rights. Contracts having plurality of parties with separate and defined obligations and rights may
not be regarded as having joint obligations or rights even if it is made in one document. These
contracts are called simple joint obligations. In simple joint obligations, there are as many
contracts as there are debtors or creditors despite the fact that these contracts stem from the same
instrument. Under such contract each debtor is only liable for his own share and so is the creditor.
25 That means there are as many contracts as there are debtors or creditors even if they’re made
in the same document. Where the nature of the obligation is indivisible by operation of the law or
by the nature of the debt, simple joint obligations may sometimes be regarded as joint obligations.
26 These are what are sometimes known as indivisible obligations.

SECTION FOUR: SURETYSHIP

The general principle in the law of obligations has it that the property of a debtor is the pledge of
his creditor (general security). But in the real world, this is not always the case due to reasons like
insolvency of the debtor, multiplicity of creditors and improper conducts of the debtor. Suretyship
is defined as a contract in which a person binds himself for another already bound and agree with
the creditor to satisfy the obligation if the debtor does not. Suretyship is thus a means of
minimizing the risks that may befall on a creditor on account of the inability of the debtor to
perform his obligations.

24 Art 1916. 25 Article 1918 and 1919 26 Article 1917

4.2 EFFECT OF SURETYSHIP BETWEEN THE CREDITOR AND SURETY

Moment of action: proceedings against the debtor shall interrupt the period of limitation for the
surety. Because any action against the debtor shows that the creditor is diligent and has no
intention of not being paid. 34

Maturity of debt; the surety may not be demanded to perform his obligation prior to the maturity
of the debt. But where the due date is not provided the surety can put an end to the suretyship. If
there is agreement to notice, the surety should be given such notice. 35

Simple suretyship; the surety undertakes to discharge his obligation should the debtor fail to
discharge it. The action of the creditor against the guarantor may only be initiated After the
contractual term set for the execution of the principal debtor’s obligation. However, there is a
defense for the surety, that may require the creditor to first proceed against the debtor prior to
resorting to him. 36

Benefit of discussion; has to be required by the guarantor when he is himself sued. If it is not
invoked at the time of the suit, it is deemed waived. Where insolvency of debtor is established
discussion can not be claimed. Surety is also required to adequately describe the assets of the
principal debtor against which the creditor may take actions. In addition, the surety is duty bound
to advance sufficient money to cover the cost of the discussion the assets to be discussed has to be
unencumbered by other creditors and not to be out side the judicial jurisdiction of the court. In
addition, the surety is duty bound to advance sufficient money to cover the cost of the discussion.
The advantage of discussion is the surety will be discharged partially or totally. Incase of failure of
creditor to action and the debtor becomes insolvent, where the surety indicated assets and covered
costs of discussion, he is liable to the extent of value of assets indicated. 37

Summons to proceed; the surety has the right to demand the creditor to bring an action against the
principal debtor within six weeks where the obligation falls due. The surety shall be released if the
creditor fails to do so. 38

34 See Article 1929. 35 See Article 1932 of the civil code. 36 Article 1934. 37 See Articles
1935 ,1936 and 1937. 38 Article 1938.

Tender of payment; Where the debt is due, the surety may require the creditor to accept
performance and/or payment. He shall be released if the creditor does not accept payment or
refuses transfer the securities that would entitle him to proceed against the debtor. 39

4.2 RELATIONSTHE PRINCIPAL DEBTOR AND THE SURETY

Right to indemnification; Normally a surety is one who pays for another and, as such, he has the
right to get back what he pays from that other. Once the creditor is paid, the surety becomes the
new creditor on the same debtor. This right extends to the principal debt, the interest and the cost
incurred. Moreover, it extends to damages sustained because of debtor’s fault. Failure by the
surety to deliberately raise defenses of the principal debtor may result in the loss of the surety ’s
indemnity claim. Such are what are known as traditional defenses of nullity, payment and
extinction of obligations. 40

Second payment; Surety’s failure to inform his payment to the creditor to the debtor may deprive
him of his right of indemnification in the event the debtor settles accounts with the creditor
without any prior knowledge of this payment. But the surety may claim from the creditor what he
received from the debtor the simple reason that one cannot be paid twice. 41

Benefit of subrogation; The surety steps into the rights of the creditor to the extent of payment
made by him. The benefit may not be contracted away in advance. Creditor is also bound to hand
over all securities and documents of title to the surety under pain of loss of his right against the
latter. 42

Rights of surety against the principal debtor before payment; he may demand securities from the
debtor where the debtor has been notified to pay his debt, declared bankrupt, Surety’s obligation
become onerous and Extension of the time given to the debtor by the creditor without the
agreement of the surety. 43

4 RELATIONS AMONG CO-SURETIES

39 Article 1939. 40 See Articles 1940, 1941 and 1942 of the civil code. 41 Article 1943. 42 Article
1944 and 1945. 43 Article 1948 of the civil code.

Balew Mersha and Kahsay Debesu, Law of contract ll, Teaching Material (justice and legal system
institute, 2009).

Tilahun Teshome, Basic principles of Ethiopian contract law ( 2nd edn, Addis Ababa university,
Addis Ababa 2002).

LAWS

The Civil Code of Ethiopia, Proclamation No. 165/1960.

JOURNALS

A. I. D. “Contracts: Joint or Joint and Several?” California Law Review, vol. 5, no. 2, 1917, pp.
163–64. JSTOR, doi/10.2307/3474253. Accessed 5 Jan. 2023.

Williston, Samuel. “Releases and Covenants Not to Sue Joint, or Joint and Several Debtors.”
Harvard Law Review, vol. 25, no. 3, 1912, pp. 203–22. JSTOR, doi/10.2307/1324909. Accessed
4 Jan. 2023.