Case-law based analysis of contractual unpredictability under rwandan law

SECTION 2. OPPORTUNITY OF A CHANGE UNDER RWANDAN LAW

When a solution has been adopted in a legal system similar to ours, and that this solution is not subject to any dispute, it is likely to be introduced into our legal system.

We will examine the issue successively in terms of equity and social norms, economic efficiency and legal security.

2.1 Equity and social norms

The contractual unpredictability acts as ultima ratio i.e. last resort, when we cannot permit the creditor to demand the execution of a contract which has become, having regard to circumstances beyond the control of the debtor, unbearable for the latter'⁰'.

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101 PLANIOL et RIPERT, op cit, p.552

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It is the equity which in 1993 pushed the Court of Appeal of Kigali to allow the revision of the contract of carriage between Mr. K. T and Mr. R. R shocked by the liberation war between the RPF and ex-FAR¹⁰².

Even the adversaries of unpredictability recognize that this theory is to make more equitable contractual legal relations.

The exclusion of any possibility of revision of alimony granted to the spouse after divorce by mutual consent by the Primary Court of Kicukiro¹⁰³ seems shocking in terms of equity. Is it, for example, logic that the creditor of alimony who loses his job should continue to pay the same amount to his former spouse, unemployed at the conclusion of the contract, who thereafter found a job? The judge should have considered the circumstances that followed the conclusion of the contract and then revise the contract.

Comparative law, along the lines with the Belgian and French law shows that applying the concept of contractual unpredictability would avoid the inconsistency and injustice.

2.2. Contractual economy

A state of circumstances that formed or should form the basis for evaluation of contract terms is integrated into the contractual economy.

It is determined on the basis of the following elements¹⁰⁴:

- Agreements between the parties and the procedures for concluding the contract;

- The contract itself. Its content may consider a circumstance, the common intentions of the parties. Price is an important element of appreciation. The nature of the contract is also to be considered;

102 RCA 8769/kig of 29^th July 1993 op cit

103 RC 0039/05/TD/Kro of 30^th september 2005 op cit

104 R. DEKKERS, op. cit, p. 512.

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- Finally, the mode of execution of contract will, based on the conduct of the parties after the conclusion of the contract, better define the objectives that the parties had set.

Too absolute application of the principle of convention-law does not seem appropriate¹⁰⁵. Deny the adaptation of the contract in exceptional circumstances, is, ultimately, refuse to adapt to a new environment¹⁰⁶.

A contract totally unbalanced subsequently new circumstances is no longer economically useful.

The fear of an unfortunate intervention of the judge in the contract may be appeased by the inclusion of appropriate contractual clauses. An alleged incompetence of a judge of the judicial order in the field of reviewing contracts cannot be invoked to reject the concept of contractual unpredictability¹⁰⁷.

Thus, the meeting of a rock during the construction of the road Rusumo-Kayonza by the CORAS Company pushed the Court of First Instance of Kibungo to grant an additional cost to the contractor who was committed to build a road¹⁰⁸. This solution was certainly economically justified and allowed to preserve the viability of the market and hence the company.

2.3 The legal security

In a legal system, a concept must be clear and specific to be put into applications. If, in order to obtain the solution that he considers appropriate, the judge must apply a concept extensively or wrongly, the law has no legal

105 J.L BAUDOIUIN, «Justice et équilibre: la nouvelle moralité contractuelle du droit québécois» in Etudes offertes à J. Ghestin, Paris, L.G.D.J, p.97.

106 D. PHILIPPE, «Les clauses de force majeure, imprévision et de transfert des risques» in Les clauses applicables en cas d'inexécution des obligations contractuelles, Bruxelles, La charte, 2001, p.127

107 M.J KAMI. «Planning in times of unpredictability», in Columbia Journal of World business, Summer, 1976, p.26.

108 RC 867/92 of 28^th September 1992, op. cit.

security desired¹⁰⁹. If an institution organizing the unpredictability in contract is not regulated in a precise manner, judges will tend to apply this concept in the hypothesis that does not match with it.

In our opinion, the parties' expectations are met, the security of business will be better guaranteed, if the contract is adapted to new circumstances so that its performance once again becomes consistent with the economy of the convention.

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109 J.L BAUDOIUIN, op. cit, p.110.

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CHAPTER III. RESTORATION OF THE BALANCE OF CONTRACT

This last chapter elaborates on the role of good faith in the restoration of balance in the contracts (Section 1), and then it covers others duties of parties in the contract (Section 2) and it ends by the intervention of the judge in the contractual relations (Section 3).

SECTION 1. GOOD FAITH IN CONTRACTUAL RELATIONS 1.1. The concept of good faith

The concept of good faith is the belief of a person to be in a situation in accordance with law and conscience to act without harming the rights of others, without fraud.¹¹⁰

Be of good faith, is to behave honestly. Be of good faith, it is also to have a loyal behavior. While the honesty is intrinsically linked with the intention of its author, loyalty can be heard for the actions, norms, standards required in a given situation. Is loyal and adequate to good faith, a legal situation which complies with moral laws¹¹¹.

Good faith is a general presumption that the parties to a contract will deal with each other honestly, fairly, and in good faith, so as to not destroy the right of the other party or parties to receive the benefits of the contract. It is implied in every contract in order to reinforce the promises of the contract¹¹².

110 X. La notion de bonne foi dans les contrats, available at http://lexinter.net/JF/bonnefoi1.htm accessed on 3rd October 2011

111 X. La bonne foi et la loyalité, available at

http://www.usherbrooke.ca/droit/fileadmin/sites/droit/documents/RDUS/volume 26/26-2-lefebvre.pdf accessed on 3rd October 2011

112 S.J. BURTON, Principles of Contract Law, St. Paul, Minn,: West Group, 2001, p. 444

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The problem of unpredictability arises when a contractor is obliged to perform an obligation, while the occurrence of new and unforeseen circumstances at the time of conclusion of the contract makes this performance more difficult or expensive¹¹³. Good faith imposes that a party cannot fulfil its obligation when an event has substantially changed the conditions under which the contract originated¹¹⁴.

The solutions adopted by courts show some creativity and flexibility. Indeed, adaptation to unforeseen circumstances of the contract is accepted in different sentences on the basis of good faith¹¹⁵. Thus, the theory of unpredictability, which comes from the principle that pacta sunt servanda, is limited by the superior principle of good faith¹¹⁶. It is manifestly contrary to good faith and therefore abusive to maintain obligations to the debtor under the contract if the circumstances existing at its conclusion have changed to a point as the economy of this contract is upset¹¹⁷.

1.2. Good faith in the contractual process

Good faith is widely understood as loyalty, solidarity, proportionality and concern for balance of contract imposing itself in all phases of the life of the contract: negotiation, information, conclusion, execution, interpretation, modification, renegotiation, breach, rupture and consequences¹¹⁸.

The parties are required to comply with the requirements of good faith in international trade. They cannot limit this obligation or limit its scope and each

113 Ibid.

114 Ibid.

115 For example in the case RC 3720/R10/2001 of 12^th October 2001, op. cit.

116 E. AUDEMET, Théorie générale des obligations, Paris, Sirey, 1965, p. 451.

117 Id.

118 S.J. BURTON, op. cit., p. 450.

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party must act in accordance with the requirements of good faith. The parties may not exclude nor limit this duty¹¹⁹.

Good faith is a concept whose importance continues to grow in law of contract. Some¹²⁰ want to make it a general principle that all contracts would be subject to, others see it as a dangerous instrument placed within the power of judges. Behind this conflict lie opposing conceptions of law of contract which have been accepted or rejected according to the legal systems.

In any case, each contractor shall inform its negotiating partner on each item which may affect the progress of their talks. This determination efforts the exteriorization of good faith in the contractual process¹²¹.

At the conclusion of the contract, article 8 CCB III provides for four essential conditions for the agreement to be valid. These are: the consent of the party who obliges, the capacity to contract, a certain object which forms the subject of commitment and a lawful cause of obligation.¹²²

Consent must be clear and freely given i.e. it must be genuine. Consent is the manifestation of the will of each of the contractors. Under Article 9 of the Civil Code Book III, there is no valid consent if the consent was given by mistake or was extorted by violence or fraud. When one party has contracted under these conditions, the law recognizes the possibility to cancel the contract in court. Indeed, defects of consent constitute a legitimate reason to cancel the contract.

The object of the contract is the legal transaction that the parties wish to achieve. The object of the obligation is the thing promised by the debtor, the content of his commitment. The object must be fixed or determinable. Each object must be identified and this will be by its nature. If it is a specific thing, it

119 Article 1 of European principles of law of contracts. Revised and completed version of 1998

120 DEMOGUE René and B.S.MARKESINIS

121 E. KALIMUNDA, La bonne foi en matière contractuelle, mémoire, Butare, UNR, Faculté de Droit, 1991, p.21.

122 Art 8 of CCB III op. cit.

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will be defined and individualized. Example: state the house for sale. If the object is a thing of a kind, the determination is made in quality and in quantity¹²³. If the object cannot be determined it must be ascertainable, is to say, defining the criteria by which the object will be determined¹²⁴. In the sales contract, the price must be fixed or determinable at the time of contract formation¹²⁵.

The efficient cause is the event preceding the contract in time. It will be the same for each type of contract. In the bilateral contract it is the exchange of benefits while in the unilateral contract it is for libertarian intention. According to the modern doctrine, the cause is the motive that pushed an individual to contract, it is called final cause¹²⁶.

The cause must be real under penalty of nullity of the contract. The false cause is an error, a contractor agrees thinking that there is a consideration when it is not¹²⁷. We talk about dissimulated cause when parties try to hide the nature of their relationship in an apparent act and conclude in a secret act said counter letter another commitment, it has two causes for both contracts, but only the second involves the determinant cause of contract (example: to cover up a debt under a loan agreement)¹²⁸.

Concerning good faith in case of capacity, it is the ability by law to be bound by a legal act¹²⁹. Under Article 23 of the CCB III, any person can contract, if he is not declared incapable by law. The law protects the incapable persons and their contractors that is in order to protect third parties of good faith and not to cancel the proceedings concluded.

123 F. ZIGIRINSHUTI, Specific private contracts, Butare, NUR, 2006, p. 14.

124 Ibid.

125 Id., p. 15

126 J. PINNEAU, op cit, p. 89.

127 Article 30 CCB III

128 J. PINNEAU, op cit, p. 90.

129 J.L. BAUDOUIN, Justice et équilibre: la nouvelle moralité contractuelle du droit civil québécois, Paris, L.G.D.J., 2001.159.

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Good faith is required in contractual relations of the purpose for the proper functioning of contractual life. If the contracting parties respect each other the duty of good faith, each party will have what he expects from the contract and the third parties will not be harmed by him.

1. 3. Sanction of violation of good faith

Good faith resulting from moral considerations is a general and fundamental law of contracts. The lack of good faith is punishable by either the nullity or the rescission of the contract. The nullity is defined as a legal sanction that strikes an irregular legal act, according to the required elements of validity¹³⁰. The nullity is intended to deprive the legal act of the legal effects it would have to produce. So the contract is deemed never to have existed.

So, in case of breach of duty of good faith, a legal act concluded becomes void, so there is annihilation ab initio. Every nullity must be established by the judge¹³¹. The rule that agreements must be performed in good faith allows the judge to sanction the use of unfair contractual prerogative; it does not allow him to undermine the substance of legal rights and obligations between the parties.

As for the resolution of the contract, it is a judicial dissolution of the contract for fault in the performance of the contract. Under Article 82 CCBIII the resolutory condition is always heard in the bilateral contracts, in case one or two parties do not meet a commitment¹³².

The breach of good faith is usually punished by the civil liability of the other party of bad faith. It can certainly find another penalty in the neutralization of

130 A.M. NGAGI, op cit, p.76.

131 A.M. NGAGI, op cit, p.76.

132 Rwandan civil code book III, op cit.

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the stipulation and on this point there is in France, a classic case law for resolutive clause¹³³.

It should be noted that the parties to the contract must say the truth and nothing else but the truth especially about the purpose and performance of the contract, a fortiori the breach of good faith would lead to the resolution of it.

SECTION 2. OTHER DUTIES OF CONTRACTORS 2.1. The duty of loyalty and cooperation

Loyalty prohibits a party to the contract to mislead their partners about the extent of their obligations¹³⁴. It also prohibits any behavior that would prevent the other party to withdraw the normal benefit of contract. Loyal information of the other party implies first that one refrain from any kind to deceive other, it is also assumed as in the pre-contractual phase, the duty of information¹³⁵.

Concerning the obligation of cooperation, the harmonious execution of the contract involves some collaboration between parties. The duty to cooperate which permits relations between parties to a contract requires that each one inform the other of the content and circumstances that go into the perfect performance of the Contract¹³⁶.

According to H. De PAGE, solidarity laid down by contractual relationships, in view of social utility; prohibits each party to lose interest in the other. Both must loyally and mutually provide all necessary support to successful conduct of the contract¹³⁷.

133 Cass. 1^ere civ. 16 fevrier 1999, Bull., n^o 52

134 E. KALIMUNDA, op cit, p.39, unpublished

135 Ibid.

136 X. Duty of cooperation and loyalty, http://www.erudit.org/revue/cd/1997/v38/n2/043443ar.pdf accessed on 4th October 2011

137 De PAGE, Traite élémentaire de Droit civil Belge, principe-doctrine-jurisprudence, Les obligations, T.2, I^ère partie, 3e éd., Bruxelles, 1964, no 466

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The goal of the duty of cooperation is to facilitate the work of the other party. It is mainly in terms of the contract that this obligation takes its full extent. Indeed, during the execution of contract, good faith gives rise to the obligation of cooperation¹³⁸.

2. 2. The duty of information

The duty to inform is grounded in moral considerations that form the set of principles constituting the rules of conduct that everyone must respect. Thus, the duty to inform would be the natural result of the application of principles of good faith and contractual morality¹³⁹.

In a society of independence and responsibility, it seems natural to ask everyone to take its interests without waiting for the rescue of others¹⁴⁰. Hence the maxim debet esse curious emptor i.e. the buyer should be curious¹⁴¹ meaning that every contractor must be vigilant while contracting.

But at the same time, loyalty which should govern the formation of contractual relations seems to impose that when a person has information which may influence the choice of her partner, he communicates it spontaneously¹⁴².

It is the duty of everyone to inform himself. But from the mid-twentieth century, a school of thought more responsive to the weak, more concerned with reducing inequalities, has changed the balance in favor of one whose real capacity to inform appears to be limited. The duty to inform himself then leaves the place to the duty to inform.

138 Y. DERAINS, «Les tendances de la jurisprudence arbitrale internationale», Journal du droit international (1993) 120 829, 849.

139 P. LE TOURNEAU, « De l'allégement de l'obligation de renseignement et de conseil », (1987) 2 Recueil Dalloz

Sirey, Chronique XIX, p. 101, 104.

140 F. TERRE, Ph. SIMLER et V. LEQUESTE, Droit civil, Les obligations, 8^e éd., Dalloz, Paris, 2002, p. 238

141 ROLAND et BOYER, Adages du droit français, 4e éd., Paris, Cujas, fl^o 110, p.199

142 Ibid.

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Our interest is rather on the duty to inform, that could be described as specific accessory obligation or implied, resulting from the application of either a law or general principles of law. One can see that in our civil law relating to contracts, the obligation to inform the other party is part of the obligation to execute the contract in good faith¹⁴³.

The duty to inform exists when the debtor knows or should know the information that concerns a relevant fact so decisive for the other party, especially when it has full confidence in the knowledge of the debtor¹⁴⁴.

The obligation to inform can be linked to the requirement of free and clear consent. It is also part of good faith in contract formation.

The obligation to inform is a pre-contractual obligation that participates in the particular development of a notion of professional and the burden for a professional to inform the profane, whether professional from another specialty or unprofessional¹⁴⁵.

At the end of analysis, we see how much is fluctuant the duty to inform for the debtor of it. This obligation, as the obligation to cooperate, is one of concepts introduced in the moral law. It comes somehow moralizing contractual relationships to the parties by imposing general norms of behavior.