Creditors of the Parities

5.4.2. Creditors of the Parities

1. The principle: attachment of the debtor's assets

Of course, this general right cannot be absolute, and it is framed within the rules governing attachment, as stated in the civil procedure code, and especially the rule stating that certain assets cannot be attached essentially the basic living commodities and tools of the debtor's trade. Accordingly, there are a number of things that are not seizable which the debtor can keep without paying his debt.

In most cases, the non-attachability is founded on the idea of humanity. The law declares that the objects necessary for the life of the debtor are not subject to attachment; to take them away

2. Agreements entered into by the debtor

The principle of contractual freedom cannot be affected by the fact that the debtor already has an outstanding debt. The mere fact that someone is a debtor of another does not totally preclude him from entering into agreements regarding his property. Therefore, the principle is stated in Article 1989 (1) of the Civil Code that any other agreement entered into by the debtor can be set up against this other creditors. Article 1989(2) of the Civil Code even goes to maintain his principle in respect of things upon which the creditors have acquired a right. For instance, the pledger may sell the pledge despite the fact that it is pledged (Article 2834 of the Civil Code). So the rights of the debtor over his own assets are far ranging, as they derive from his right of ownership.

But if the agreements are not legitimate, there still has to be a balance struck to maintain the rights of the creditor, hence the following exceptions to the principle incorporated under Article 1989.

The first exception is Article 1990 of the Civil Code which deals with preferred creditors. Preferred creditorship may arise from a contract. A debtor may give his movable or immovable property as security to his creditor. Preferred creditorship may also arise from the law. In such cases, there is no contract giving rise to such privilege. It is the law, for various policy reasons, that makes certain creditors preferred from others. For instance, any claim of payment of worker arising from employment relations by virtue of proclamation No. 377,2003 and payment of tax to the tax authority by virtue of Article 8 of pro. No 286,2002 makes workers and tax authority preferred creditors. Thus, in the above cases, the provision of Article 1989 will not apply. Article 1990 adds one item to the list, where the debtor is deprived by a court of his right to manage his

The second important exception is that of simulation. Simulation is defined by Article 1994 of the Civil Code as the case where the debtor enters a simulated contract with a third party, i.e. a contract which was not intended to be carried out. The simulated act is the apparent act, whilst the reality of the situation is in a hidden act, called the counted deed or back letter. For instance, the debtor shows the contract of sale for a car at 10,000 birr, when the counter-deed was in fact for 100,000 birr. Or the debtor states apparently that he loans 25,000 birr, whereas in reality it is a gift. This is the second situation where Article 1989 is not applicable which is provided under Articles 1994 and 1991 of the Civil Code.

The creditor will have the burden of proving that the apparent act is only a simulation, a sham. This might be difficult for him, but if he manages to prove it and obtains a court decision to this end, then Article 1991 of the Civil Code is applicable. The counter deed, or hidden agreement is not declared invalid; it is in fact binding on the debtor and the other contracting party. But it cannot be opposed to the creditor, who, quite on the contrary, and according to his interests, may avail himself of the apparent act. The debtor will stand to suffer the difference to take up the examples stated above, the creditor will declare that the sale at 10, 000 birr cannot be opposed to him, and thus will prove that the assets of this debtor have in fact been increased by 100, 000 birr. But in the second example, he will claim that the asset given is in fact loaned and is entitled to attach it as it will be deemed still in the ownership of the debtor.

Every simulation presupposes the concurrence of two contradictory agreements, to which it is impossible to give a cumulative effect with regard to the same person. It is, therefore, necessary to choose between them, and to hold either to the apparent or the secret act by discarding one of the two. This depends on the relationship of parties inter se and that of the parties with third persons.

In case of relations of the parties inter se, considering the simulated contract, the intention of the parties is to give it no effect. This contract lacks the basic element of contract the intentio

On the other hand, third parties confronted by an act affected with simulation can have opposing interests. Some know of the existence of the secret act and have an interest in proving it because the apparent situation created by the simulated contract is prejudicial to them. Others have dealt' with the parties on the basis of the apparent act, and accordingly they have an interest to set aside the counter deed agreement in order to maintain this apparent situation which is profitable to them. Thus, there are third parties against whom the secret agreement will not be effective and others against whom the apparent act is not admissible.

For those third parties against whom a secret agreement is not admissible, they should be able to rely on apparent acts as these are the only agreements known to them. That is why Article 1991(2) clearly states that counter deeds shall bind contracting parties only. Thus, in all cases where the production of counter deed would entail unfavorable result as to those good faith third persons, the apparent act alone is observed.

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