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Case Summary and Issue for Reflections - Formality requirement in Insurance Contract

The case involves the failure to comply with the formality requirements more specifically the failure of witnesses and parties to the contract to put signature on insurance policy as ground for non-existence of contract of insurance.  Asosa Zonal court upheld that there is no insurance contract because signature is missed. The Higher Court confirms the decision of the Zonal court. Then Ethiopia Insurance Company appeal against this judgment by alleging that there is fundamental error of law.

Material facts

  1. The respondent expresses its desire to insure its ten vehicles by written letter contain the signature of manager and seal of the authority.
  2. After receiving a written letter from the authority, the insurer i.e. Ethiopia Insurance Company issues policy and sign on it.
  3. The insured i.e. Benshangule Gumuz Bureau was not signed on the insurance policy.
  4. The contract was not attested by witnesses.
  5. The insured is not willing to pay the premium which is 55, 068.56 Birr.


Whether or not there is a valid contract of insurance

Holding of the Supreme Court cassation bench

The Supreme Court reverses both the decision of Zonal Court and Federal Higher Court and held that there is a valid contact of insurance.

Reasoning of the court/ cassation  

The court said insurance is one type of contract the concept of offer and acceptance by analogy apply. The court further state that in insurance it is possible to say that when the person fill the proposal form prepared by insurance company that will be consider as an offer. On the other hand, when the company i.e. insurance company signs on the policy, it tantamount to accepts the offer and hence the contract deems to be concluded between two parties. Moreover, the court by citing Article 651, Article 654 and Article 657 of Commercial Code: if once valid insurance contract is concluded between the parties then either party cannot terminate it.

The court mull over the letter submitted by authority to the insurance company which contain signature of the manager with seal of the authority as it’s fit the concept of offer. The fact that company sign on policy is instance to show there is acceptance.

As stipulated under Article 1725 and 1727 of the Civil Code, contract of insurance must be concluded in written form. It impliedly includes signature by both parties and attested by two witnesses. However, the court said that there is more special law governing such transactions i.e. Commercial Code and in Commercial Code there is no requirement of insured to sign on policy. What the code provided as a mandatory requirement is signature of insurer on the policy. It is principle of interpretation that in case of conflict between two laws in equal hierarchy and with equal maturity dates the special law prevails over the general law. In our case the Commercial Code prevails over the Civil Code.

Issue for reflection

From the cumulative reading of Article 1678(C) and Article 1719(1) of the Civil Code, form is not required in concluding a contract, this is the principle. However, as per Article 1719(2) and (3) of the Civil Code, there are two instance whereby form may be necessary to conclude a valid contract. The first instance is when the contracting parties agrees that there must be special form and second when the law requires such form.

From the whole reading of formality requirement in the Civil Code, it’s possible to say that there are two types of formality requirements. The first one is for purpose of evidence or proof. A good example here is contract of loan for value exceed 500 birr, Article 2472(1) of the Civil Code. The second, on the other hand, are those formality requirements for purpose of validity. The old maxim ‘forma dat esserei’, form gives existence to the transactions. In such type of contract non-compliance render contract void or by word of Article 1720(1) it consider as mere draft. So, mere draft is not contact but intention to enter in to a contract. A good example here is insurance contract.

Article 1725(b) of the Civil Code requires insurance contract to be in written. So, it is a mandatory provision of law in which a contracting party cannot set aside. From close reading of Article 1727 of the Civil Code, written formality in turn includes three elements. First, there must be special documents. Second, signature by both parties and finally, it must be attested by two witnesses.

What is special document in insurance contract? Logically, it cannot be both proposal form fill by insured and policy issued by insurer since special document presuppose one document, not two separate documents. As per Article 654(1) insurance contract is insurance policy i.e. the law consider this two as one and the same. In addition to this, the law uses these two terms interchangeably throughout the code. Therefore, it is plausible to say special document in insurance contract is insurance policy. Thus, in this document both parties should sign and witnesses should attest by way of signature. Unless, this requirements comply the contract becomes null and void or void ab inition or mere draft by word of Article 1720(1) of the Civil Code. In our case at hand, there is no signature of insured and witnesses on policy and hence it’s void from the beginning. To put differently, there is no contract at all which sustain in the eyes of the law.

The court heavily base it argument on Article 657(3) of the Commercial Code which does not provided a requirement of insured signature and witnesses’ attestation. However, in case the Commercial Code keeps silent we have to resort to Civil Code by virtue of Article 1 of the Commercial Code. The law maker keeps silent simply to avoid redundancy of legal provisions.

Moreover, the court state in case of contradiction between two laws the special law prevail over general law i.e. Commercial Code prevail over Civil Code. I disagree on this reasoning too. First and foremost, there is no clear and real contradiction between these two laws. Even if we assume there is contradiction as far as law of contract or obligation is concerned the Civil Code prevail over the Commercial Code. This is what we infer from the ex poste demotify which read as follow ‘…… I thought it is preferable; however, more in conformity with the preeminent place of civil law in future law of Ethiopia, in the theory of obligation and in regulation of contract, to maintain the classic principle of priority of Civil Code. This is principle I have incorporated in Article 1 of Commercial Code.’  (Emphasis added). It is crystal clear that unlike the judges’ believes that the Civil Code prevails over the Commercial Code rather the reverse is true. By doing so the panel judges of cassation violate the core principle of interpretation, which state that interpretation must comes out of law, not the law comes out of interpretation. For all these reasons I disagree with the decision of the court.


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Sunday, 14 July 2024