As it is remembered, different ways by which contractual obligations can be extinguished have been seen. The last way by which contractual obligation comes to an end is limitation of action. Limitation of action will be discussed, along with prescription and limitation of right.
Under this topic we will discuss the effect of the period of limitation on principal and collateral obligations, the instances on which the period of limitation is interrupted, the role of court in disregarding and considering, along with the right of the parties in waiving and invoking the period of limitation.
Under the Ethiopian law of contract limitation of action has been put as one way of extinction of obligation. Making period of limitation a means of extinction of obligation creates security of business transaction eroding uncertainty among contractants. Period of limitation also avoids bafflement which might be created owing to loss of evidence when time lapses. Its deterrence impact on dormant contractants is also considerable purpose of extinction of obligation by period of limitation after which the party will not be compelled by thes undertaking in the contract. The problem related with loss of evidence after the lapse of a considerable of period time is also avoided by period of limitation or prescription. Prescription can be either acquisitive or liberative. Acquisitive prescription entitles the beneficiary with certain right after the expiry of certain period of time.
Period of limitation is one classification of prescription that includes libertive and acquisitive prescription. Liberitive prescription relieves the beneficiary from certain obligations after the lapse of certain period of time.
In liberative prescription there can be limitation of right and limitation of action. Limitation of right absolutely extinguishes the right of the other party while limitation of action extinguishes the right to bring action i.e. court action. The Ethiopian law of contract under Article 1845 provides the principle of period of limitation.
Art.1845__ Period of limitation
Unless provided by law, action for performance of a contract, action based on non-performance of a contract and action for invalidation of a contract shall be barred if not brought within ten years.
According to this provision “action for performance” refers to bringing a court action to effect performance, “action based on non-performance of a contract” refers to bringing court action aimed at remedies of non-performance like damage, cancellation and even forced performance, and “action for invalidation of a contract” refers to bringing court suit to have a contract invalidated. All these actions shall be barred unless brought forward within ten years.
Discussing whether period of limitation bars right or action is on issue worth discussing. In dealing with this, the title of the section where the provision is found connotes that it limits action. In addition to that the French version equivalent to this provision (Article 2262) limits all actions. There are also provisions that show the possibility of existence of certain rights even after the lapse of the prescribed time. Article 1850, showing that limitation does not bar the right exercised on pledge even when period of limitation bars the principal obligation, exemplifies such provision.
On the other hand, it is argued whether this provision limits all rights out of the contract albeit the indication of its title. Professor Rene David has put this position in his commentary as: “The Ethiopian code preferred the formula found in the Italian civil code which provides that all the rights are subject to ten years limitation.” He has confirmed this position denoting that the right created by the contract disappears by limitation; it can be asserted in anyway.
The controversial issue in light of period of limitation is the relationship between Article 1845 and Article 1810.
The time when period of limitation starts to count has been put under Article 1846 of the Civil Code as:
Art.1846__ Beginning of period of limitation
The period of limitation shall run from the day when the obligation is due or the right under the contract could be exercised.
Period of limitation for action based on non-performance does not for example beginto run from the time of the formation of the contract unless performance shall be made immediately. If the time of performance of the contract is after one year from the formation of the contract, period of limitation runs one year from the formation of the contract as the obligation is due after one year.
The provision additionally solves the problem with respect to certain obligations like conditional rights, which are treated separately as made in Article 2257 of the French Civil Code. The French Civil Code deals with each right which can be due or claimed at another time from the time of formation of contract. Conditional right cannot be exercised till the condition is fulfilled and it is then when period of limitation runs.
Ambiguity that could arise in respect of annuities has been covered by Article 1847 where limitation runs from the day the first payment was not made was due. Article 1847 has clarified the perplexity verbally as:
In respect of annuities, the period of limitation shall run from the day when the first payment not made was due.
In annuities the due date of the payments is different. One payment is paid first and the following will be paid next. The Civil Code makes the time of the first payment a reference for counting period of limitation in respect of annuities.
Someonewho is entitled to be paid every May 1 and November1 is not, for example, paid as of 1960 till 1975. It is questionable if his right is barred for his claims staring November 1, 1960 – November 1964 as these payments have been due for more than ten years or he has lost all his right since ten years has lapsed before the rights are asserted. According to Article1847, all the rights are barred starting from the time when the first payment which was not made is due.
Haziness, which can be created by way of assessing a year whether in weeks, days or hours, has been dealt with under Article 1848. Accordingly, the period of limitation shall run from the day when the obligation is due or the right under the contract could be exercised and is effective, excluding the day on which period of limitation begins to run. The action is barred upon the expiry of the last day without having been used.
If the remaining last day for the effect of period of limitation is a holiday, the action shall be debarred on the next working day. According to the exemplification of David “If a claim is due on March 3, 1955, the period of limitation will be completed on March 4 1965 at the very beginning of the day” (6:00Am considering Ethiopian way of dividing days into hours).
Principally period of limitation is one way by which obligation extinguishes. Extinction of principal obligation might have different effect on the collateral obligations attached to it. The effect of period of limitation on collateral obligations has, accordingly, been treated under Article 1849 and 1850.
Interests and collateral claims shall be barred where the principal claim is barred.
According to this provision, as a rule interests and collateral claims are barred when the principal obligation is debarred by period of limitation. This seems justified, for the collateral claims depends on the principal claim which is being barred by period of limitation.
When the collateral claim is a pledge, however, the pledgee may exercise his right on the pledged property pursuant to Article 1850 which says: “A creditor whose claim is secured by a pledge may exercise the rights arising out of pledge notwithstanding that the claim is barred”
Assume that Ato Ejigu borrowed 5000 Birr to be paid after one year with 2% interest. After 2 years Belay pledged his car and Wasihun became a guarantor. The obligation to repay the debt is barred after 11 years as the right to reclaim starts after one year and this year is not included. Ten years has not lapsed for the obligation of Belay and Wasihun even after 11years lapses from the due date of the principal obligation.
Be that as it may, Ejigu cannot exercise his right on collateral obligations like surety, and mortgage eventhough 10 years has not lapsed for the claim on surety and mortgage. If the principal obligation is barred collaterals are also barred excepting pledge. He can, accordingly, exercise his right on the pledge.
There are two ways by which period of limitation is interrupted. These are recognition of the debt by the debtor and bringing of action or providing default notice to effect payment. These two ways have been stated in Article 1851 sub (a) and (b).
The period of limitation shall be interrupted where:
(a) the debtor admits the claim, in particular by paying interest or installments or by producing a pledge or guarantees; or
(b) the creditor brings an action for the debtor to discharge his obligations.
When the debtor recognizes the presence of debt by paying interest, installments, providing pledge or mortgage, the period of limitation is interrupted. When the creditor brings an action to effect performance, period of limitation is again interrupted. A court action interrupts period of limitation if it is communicated to the debtor. If the debtor is communicated, it is not necessary that the action be brought to a competent court. Serving notice to the debtor is enough to interrupt period of limitation. It must be born in mind that these ways by which period of limitation is interrupted are illustrations which might again include other ways like novation.
Interruption of period of limitation is of great importance for the creditor, as his right is not debarred. This effect of interruption of period of limitation has been indicated under Article 1852 as follows:
Art.1852.__effect of interruption.
(1) A new period of limitation shall beginto run upon each interruption
(2) Such period shall be ten years where the debt has been admitted in writing or established by a judgment.
According to this provision, a new period of limitation runs when there is interruption. A new ten years period starts to run. Assume for example Ato Abraham did not require performance for 9 years against his debtor. If Ato Abraham did ask performance or put the debtor in default, a new period of limitation starts to run. Then Ato Abraham can require performance again within ten years after 9 years. He can then require performance within 19 years from the formation of the contract.
The court has discretion whether certain claim shall be barred by period of limitation or not when there is special relationship between the parties. Article 1853 empowers the court with the power of setting aside a plea of period of limitation if it is convinced that the creditor failed to exercise his right because of obedience or fear he feet of the debtor with whom he has special relationship.
Art.1853 __ Special relationship between the parties.
(1) The court may set aside a plea based on limitation where it is of opinion that the creditor failed to exercise his rights in due time on the account of obedience he owed to or fear he felt of the debtor to whom he is bound by family relationship or subordination.
(2) In such a case, third parties who guaranteed the payment of the debt shall however be released.
If for example a employee of Ato Haile fails to exercise his right to require payment of 1000 Birr, which he lent to his employer, and his right is debarred by period of limitation, the court may set aside plea of period of limitation.
If Kebede lent 5000 Birr to his father and 10 years lapsed before he requires repayment, the court may disregard period of limitation if his father invokes period of limitation. The court does not, however, have such discretion with regard to third parties who guarantee payment. Third parties are required to be released of their collateral obligation pursuant to Article 1853(2).
Although the value of good faith has paramount importance in law of contract, bad faith of the parties is rarely considered in enforcing period of limitation. The beneficiary of period of limitation can raise period of limitation contrary to good faith according to Article 1854 of the civil code.
Period of limitation is a mandatory way of extinction of obligation and is not subjected to the agreement of the parties. They can never waive it in advance by agreement, nor can they fix period of limitation other than that fixed by law. Such prohibition has been provided under Article 1855 as:
Art.1855.__ Contrary provisions.
The parties may not in advance waive limitation nor may they fix periods of limitation other than those fixed by law.
It can, however, be waived after it has been due. Beneficiary of period of limitation is at liberty to waive period of limitation after it has fallen due. Failure to raise period of limitation is considered to connote waiving of the defense of period of limitation. In light of this, Article 1856 denotes the above connotation.
Art. 1856__ waiving of limitation.
A party may waive limitation after it has become effective.
The court shall not have regard to the period of limitation unless pleaded.
It is questionable if this is equally applied to Article 1810 which says, “No contract shall be invalidated unless an action to this effect is brought within two years from the ground for invalidation having disappeared.” The phrase “No contract shall be invalidated” seems to impose obligation on the court not to allow invalidation even though plea of limitation is not raised.