Business Law-- Full Powerpoint Presentation.pdf

Introduction
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Business law is a body of rules (laws) which govern
business and commercial activities (in particular, it
regulates law of person, contract, agency, business
organizations/partnerships);
A branch of civil law;
Consists both public and private law issues;
Hence, every business professionals should be
aware of the legal environment that regulates the
business activities he/she is operating;

Ch-I: Introduction to Law
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1) Meaning of Law:
No consensus in defining the term “law”;
Different scholars have tried to define law
differently;
For Instance:
The Greek philosopher Aristotle thought of law as
a “pledge that citizens of a state will do justice to
one another”. Aristotle defined “law” as “ a rule of
Conduct”;
Aristotle’s student, Plato, asserted that law was “a
form of social control”;

Cont’d…
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Cicero, a Roman philosopher, believed law
was “the agreement of reason and nature,
the distinction between the just and the
unjust”;
The British legal scholar Sir William
Blackstone described law as “a rule of civil
conduct prescribed by the supreme power in
a state, commanding what is right and
prohibiting what is wrong”;

Cont’d…
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The famous US Supreme Court Justice Oliver
Wendell Holmes on his part contended that law
was a set of rules that allowed one to predict how
a court would resolve a particular dispute – “the
prophesies of what the courts will do in fact and
nothing more pretentious …”;
Though business law is deﬁned in similar way,
business law, in its special nature, regulates the
relationship between individuals with one another
as they affect economic order;
Law may be permissive or prohibitive, and the
same is true for business law;

Cont’d
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2) Features of Law:
i) Generality
The most obvious feature of law is its generality;
Law is a general statement regarding a possible
human conduct;
Any valid legal norm is applicable to all the subjects
in the author’s territory;
Law is not meant to shape the behavior of a certain
category of persons and leave others; every one is
subject to the application of any duly existed law,
saving extremely exceptional circumstances (such
as exemption from legal liability to a certain degree

Cont’d…
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For instance, a law passed by the Ethiopian
legislator (the House of Peoples’ Representatives)
demands all Ethiopians to comply with it,
irrespective of race, language, religion, social status,
sex and political outlook;
The generality of laws also implies that a law is
applicable to all similar cases, and it does not leave
others and govern some;
ii) Normativity
One of the distinctive features of law is that it is a
normative statement;
This accords with the philosophical discourse on
the dichotomy between the “is” and the “ought”;

Cont’d…
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The characterization of law as a normative
statement refers to the “ought” aspect of the
discourse, the statement of what should be rather
than what is;
Law is not a factual statement (description is not in
the nature of law); it is rather a prescriptive tool
which purports to shape human behavior in the
future;
iii) Establishment in Permanence
The coming into force of law presupposes, at least
presumably, its indeﬁnite existence in the future;

Cont’d…
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It is unusual to ﬁx a time-limit for the application of
law;
A frequently changing law creates social instability
and more prone to losing legitimacy;
This does not mean, however, that laws live forever;
They have to be reasonably ﬂexible to
accommodate changing social realities;
Change in societal circumstances is normally a
gradual process and the corollary gradual remolding
of laws cannot be regarded as resulting in an
unstable phenomenon;

Cont’d…
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Laws violate the virtue of permanence and create
instability when they change quickly and
unnecessarily without having regard to the status of
the situation it is meant to govern;
Law might exist exceptionally for temporary
application;
The possibility of the declaration of sate of
emergency (e.g. six months-Art.93(3) of FDRE
Constitution) explains such a circumstance;
The law declaring the emergency situation remains
in force until the matter that called for the
declaration of emergency secedes;

Cont’d…
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But overall, law is to be established in permanence
and a time frame would be ﬁxed only in exceptional
circumstances;
iv) Intimacy with Human Behavior and State
Law is a social norm and its ultimate concern is
regulation of the social behavior of human beings;
The claim of law would naturally be made by men
with respect to or as against each other;
Law cannot be employed to govern relationships of
other animate or inanimate things as among
themselves; it is not concerned with a claim
between humans and other things either;

Cont’d…
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The intimacy of the law and the state is far from
question;
In reality, one cannot conceive of one without the
other (they are two inseparable aspects of the same
system);
One cannot have validity or legitimacy without the
other;
Indeed, the state is itself brought into life by law and
cannot continue in that status without using law;
The law on the other hand would have life and
produce the desired effects only by the backing of
centrally organized state machinery;

Cont’d…
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v) Strongly Institutionalized
We have said above that law is backed by an
established system of a state;
The state is known for its strong institutionalization
and this provides the law with institutionalized
system of enforcement;
The state is constituted by centrally established
institutions of legislature, executive and judiciary
entrusted with the tasks of law making, law
enforcement and interpretation of laws respectively;
The combined operation of these organs sanctions
the law by a strong force;

Cont’d…
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3) Law Vs Other Social Norms
Law is a social norm, but not the only one;
There are also other values of normative
signiﬁcance in a society;
This “other social norms” category is ﬁlled perhaps
by ethics or morality, culture, religion, and the like;
These ethical/moral, or religious values are
normative in the sense that they, just like law,
prescribe what should be and what should not be
and accordingly shape the social behavior of man;
To this extent, law possesses an identical attribute
to that of ethics, morality or religion;

Cont’d…
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Nevertheless, there are conspicuous differences
between law and other social norms;
Firstly, One important issue that differentiates law
from the other social norms is mechanism of their
enforcement;
Law is backed by a strong sanction of the state and
would be institutionally enforced;
Ethical/moral/religious norms on the other hand lack
such external and effective enforcement
mechanism;
Their observance is more often than not demanded
in point of conscience than through external organ;

Cont’d…
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Individuals can breach these norms with impunity
and the most they would suffer is moral guilt;
Secondly, scope of application is a distinguishing
mark between law and the “other social norm”
category;
Law enjoys uniform and nationwide application;
But the other social norms are peculiar to particular
groups and therefore suffer from extremely
localized (restricted) application;
There could be a number of religions, cultures or
customary practices in a state; none of them would
have norms that apply beyond their own peculiarities;

Cont’d…
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Thirdly, law can still be identiﬁed vis-à-vis other
normative values of the society on the basis of the
mechanism by which it is created and changed;
Law originates from a centrally established and
clearly deﬁned institutional framework;
The existence of clear institutionalized system
would make it easy to bring law into effect and to
amend it;
Non-legal norms, on the other hand, do not normally
have an easily traceable institutional origin for they
are not made in an organized way;

Cont’d…
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They come into existence through a practice by a
concerned group over a relatively longer time in a
scattered and uncentralized manner;
The development of these non-legal norms out of
unclear and gradual process makes it equally
diﬃcult to amend them;
They are not amenable to easy and fast
amendment for they are rigidly established;
Fourthly, a further important factor that can be
regarded as a virtue of law over non-legal norms is
the exhaustiveness and clarity embedded in law;

Cont’d…
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Law would be exhaustively proclaimed (mostly
written) and suﬃciently clear;
The conduct it purports to command or prohibit
and the consequences of behaving otherwise would
be ﬁxed in advance;
Normative rules of ethics, morality, or religion are,
on the other hand, barely exhaustive and known for
their manifest lack of clarity;
And mostly non-legal norms do not determine the
consequences of breach in advance;
Since they are mostly unwritten, they are
surrounded by a cloud of vagueness and obscurity;

Cont’d
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4) Functions of Law
Law fundamentally maintains peace and security
in the society;
It is also important to note that law delves into
almost every social interaction. It regulates the
way a particular relationship is to be created,
maintained and broken. It steps into govern
detailed individual interactions. Laws of family for
instance are concerned with the regulation of the
institution of marriage and matrimonial affairs.

Cont’d…
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Contract and property laws administer
contractual bonds and property relationships of
individuals respectively. Business laws, on the
other hand, intend to shape behavior in
commercial transactions and ensure the
interaction is conducted in healthy and
effective manner;
Law protects citizens from arbitrary and
excessive governmental actions. That body of
law which sets out structure of the state and
the relationship the government of that state
would have with citizens is referred to as
constitutional law;

Cont’d…
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The powers and functions of the government are
usually deﬁned by a constitution, and this law
restrains undue governmental encroachment in the
affairs of subjects. Human rights provisions are
typical examples in this regard–that they call upon
the government to either act or refrain from acting in
the protection and enforcement of human rights;
Law of constitution can function in such a way that
the various organs constituting the government
discharge their tasks in an atmosphere of harmony
and transparency;

Cont’d…
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The principle of checks and balances incorporated
into most republican constitutions reveals the
possibility of review of actions or decisions of the
legislative, executive or judicial bodies by one
another;
Laws are also instrumental in ﬁghting harmful
traditional practices (HTPs). Early marriage has
been the widespread practice in many parts of
Ethiopia. Marriage is a big affair upon which family,
the fundamental unit of the society, is found. Yet,
such purpose is served only if spouses are
psychologically and biologically matured enough;

Cont’d…
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Ignorant of such fact, most Ethiopian parents force
their teenage children (especially girls) to marry
while they are in fragile mental and physical
conditions, exposing them to various economic,
social and biological problems;
The same is true of Female Genital Mutilation
(FGM). The law is a typical tool in reducing, and
ultimately eradicating, these harmful traditional
practices;
Law also plays a prominent role in improving the
life of the society through the encouragement of
innovation and creativity;

Cont’d…
Law encourages individuals to engage in innovative
tasks by granting them rights to exclusive
enjoyment of their inventions via issuing patents,
copyrights, trademarks and the like. These
mechanisms bestow inventors and authors of new
ideas with economic and moral beneﬁts, thereby
helping society to make use of better means of life;

Cont’d…
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5) Classifications of Law
The body of law is huge. To study it one must
break it down by means of classification;
Classification of laws is the systematization of
the law based on the subject matter for the
purpose of finding the relevant law more easily
and determining whether different legal rules
were required depending on their area of
application;
No single classification system can cover the
large mass of legal information. Consequently,
those systems that have been devised tend to
overlap;

Cont’d…
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The best known classiﬁcations of law follows are
as follows:
1) Public Vs Private Law
Public law addresses the relationship between
persons and their government, and between various
governments. They are public in the sense that the
interest of the public at large is at stake as
represented by the government. Criminal law and
constitutional law, for example, are generally
classiﬁed as public law, because they deal with
persons and their relationships to government;

Cont’d…
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Criminal acts, though they may involve only one
victim, are seen as offenses against the society as
a whole and prohibited by governments for the
purposes of protecting the public. Constitutional
law is a public law because it involves question of
whether the government (federal, state or local in a
federal setting, or the central government in a
unitary system) has the power to act in a particular
fashion;
Private law governs direct dealings between
persons. When persons deal or affect other persons,
such as in a contractual relationship, the law
governing these relationships is classiﬁed as
private law;

Cont’d…
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Private law may ultimately advance societal
interests as a whole, but its immediate concern is
with individual transactions that affect the legal
positions of the transacting persons. Agency, law
of commercial paper, trade and business
organizations, sales, torts, insurance and any other
area of business law is essentially classiﬁed as
private law
2) Substantive Vs Procedural Law
Substantive law includes all laws that deﬁne,
describe, regulate and create legal rights and
obligations;

Cont’d…
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This body of law establishes acts and situations
producing effect at law. For instance, a rule stating
that promises are enforced only when each party
has received something of value from the other
party is part of substantive law.
So, too, is a rule stating that a person who has
injured another through negligence must pay
damages. Most of the bodies of law we have
highlighted above, both public and private, are
substantive laws. Substantive law tells us what our
rights are;
Procedural law sets out the methods of enforcing
the rights established by substantive law;

Cont’d…
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Questions about how a lawsuit should begin, what
documents need to be ﬁled, which court will hear
the suit, which witnesses can be called, how the
judicial proceedings is conducted, and so on are all
questions of procedural law;
In brief procedural law tells us how to exercise
substantive rights. Civil procedure, criminal
procedure and evidence are typical examples;
3) Civil Vs Criminal Law
Civil law is concerned with the duties that exist
between persons or between citizens and their
government (the latter as an ordinary legal person),
excluding the duty not to commit crimes;

Cont’d…
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Contract law, for example, is part of civil law. The
whole body of tort law, which has to do with the
infringement, in the absence of contract, by the
person of the legally recognized rights of another is
an area of civil law;
Criminal law, in contrast to civil law, is concerned
with wrongs committed against the public as a
whole. Criminal law is always public where as civil
law is sometimes public and sometimes private. In
a criminal case, the government seeks to impose a
penalty on an allegedly guilty person;

1.3. Making and Highrarchy of laws
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In most of the Country the Law making organ is the
legislative body of the government but the executive
branch may be delegated to make a law that needs
detail expertise.
In Ethiopian context, the constitution provides that
the peoples of Ethiopia through their representative
adopted the constitution. The law making body is the
Parliament/legislative body/.This body also ratify
international treaties.

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The law enacted by such body may called
proclamation or code or else other.
The Parliament may delegate the executive branch/
Council of Ministers/ to enact Regulation based on
the proclamation. This in turn may delegate a certain
Ministry to enact Directives which ﬂows out of the
Proclamation and Regulation.

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Most of the time, the Hierarchy of Laws from
Superior to lower or top to bottom are the
Constitution,Proclamaion,Regulation and Directives.
But, if the international treaties are about
fundamental human rights and freedoms, the
constitution comes next to such ratiﬁed laws.
If there is a conﬂict in between or among such laws,
the law or laws at the higher level shall prevail over.

CHAPTER TWO LAW OF
PERSON
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Personality is a fundamental concept in law
because no dealings of legal signiﬁcance would
produce effects without it;
It answers the basic question who the subjects of
the law are;
Only subjects of the law can enjoy the rights that
the law confers upon them and only they can
discharge the duties it imposes upon them;
Thus, the normal effect of personality is the ability
to be a party to legal transactions and perform
various juridical acts (acts having effect at law)
having effect of law;

Cont’d…
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Personality is granted to two categories of beings and
accordingly is of types;
One is physical or natural personality that is possessed
by human beings;
In the past, not all human beings were subjects of the
law;
For instance, slaves were regarded as mere chattels of
their masters and did not have any rights or duties of
their own;
They were objects of legal transactions rather than
subjects of the law;
So, during those times, personality was conferred upon
non-slaves;
But these days, with the abolition of slavery and its
strict prohibition, virtually all human beings possess
personality and perform juridical acts;

Cont’d…
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The other type of personality is that accorded to
beings that do not have material existence;
Associations, companies, organizations,
partnerships, corporations or even the state are
only perceived by the law to exist;
These ﬁctitious entities are exclusive innovations
of the law and accordingly given personality
because of the necessities of modern complex
legal transactions;
1) Beginning and Termination of Artiﬁcial Personality:
There could be numerous mechanisms through
which moral persons will begin to have legal
life;

Cont’d…
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Of these mechanisms, the famous ones are
issuance of a speciﬁc legislation, effecting
registration and requirements of publicity;
For instance, public enterprises will start to
have personality upon the enactment of
establishment regulations with no other
conditions attached to it;
On the other hand, private business
organizations need to be registered with a
competent public authority in order to acquire
legal personality;
They should also comply with publicity
requirements;

Cont’d…
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So, acquisition of personality by business
organizations is realized by meeting the
requirements of both registration and publicity,
and only as a consequence of such they can
validly undertake acts of civil life;
Just like artiﬁcial personality commences
through issuance of statutes or effecting
registration and publicity, it ends through the
enactment of dissolving law or the striking out of
the name of the entity from the public registry;

Cont’d…
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To terminate the legal personality of a public
enterprise, regulations would be issued and
these would serve the purpose of ending the
legal life of the enterprise;
Ordinary business organizations would cease
to have legal life when they are canceled
from the registry and/or through the
revocation of the license issued to them as
evidence of personality;

Cont’d…
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Artiﬁcial personality may also end as a matter
of fact where the object for which the entity is
established becomes impossible to achieve or
where that organization is dissolved because
of bankruptcy;
In all above cases, the ﬁctitious beings would
die out and they can no more be parties to
transactions having effect at law;
Any act done by these beings after their
personality has terminated is deemed never to
have happened for all legal purposes;

Cont’d…
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2) Attributes of Legal Personality
Being recognized as a person by the law makes the
person possess certain attributes;
The most noticeable of these attributes are:
i) Having a name: -
It may be very simple to coin a name and call a
certain being by that;
But names do really affect the legal position of a
person because they are mechanisms of
identifying the civil identity of a speciﬁc person in
the society and of legally conferring/imposing
upon it powers and disabilities;

Cont’d…
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Furthermore, since use of a name can modify the
legal status of a person, the law provides for
protective mechanisms against abuse and
usurpation of the name by others;
Generally, it is through name as a manifestation of
civil identity that a person in the eyes of the law
can become a party to a legal transaction, and thus
it is a fundamental attribute of personality;
ii)To sue and be sued (in one's name):-
To sue is to bring a legal action against another,
and, conversely, to be sued is to face a legal action
brought against oneself by another;

Cont’d…
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In both cases, one attends a law court where
rights and duties are often modiﬁed through
judgments;
Because they involve alteration of one's legal
position and determination of liability, suits
should be brought by and against the concerned
person in its own name;
For instance, if three people (A, B and C) form a
company and the latter has satisﬁed the
requirements of law for the acquisition of
personality, it brings legal actions against others
in the name of the company and not in the name
of the owners;

Cont’d…
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Similarly, others institute a legal action
against the company in the name of the
company and not in the name of A, B, or C (the
owners);
Thus, a distinction is drawn between the
liability of the company and the individual
persons forming it;
iii)Entering into contractual relations: -
Since a legal person is an entity that can be a
party to legal transactions, it can enter into
various contracts in its own name;

Cont’d…
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A company can conclude a contract with another
company or with a human being, and the rights
acquired as well as the liabilities incurred because
of the contract belong to the company itself, and
not to the owners;
It is this legal person itself that is either the
creditor or the debtor of a third party contractant;
iv) Ownership and administration of property: -
A legal person can exercise all property rights
to the exclusion of others and enjoys ownership
and administration right over all chattels
belonging to it;

Cont’d…
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Property belonging to a legal person is distinct
from the property of its owners, i.e. they belong
to essentially different patrimonies;
v) Obligation to pay taxes: -
A legal person is liable to pay taxes on taxable
beneﬁts and gains;
Since it is authorized to own and administer
property and since it can carry on business, a
legal person pays taxes on its property and
income in the same way human beings do;

Cont’d…
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While it is generally true that ﬁctitious beings
possess all the above features on their own
behalf, there are also some other points we need
to take note of here;
We know that moral or juridical persons do not
have a physical existence, and so they are
without the natural faculties of thinking, deciding
or moving;
That means they necessarily undertake through
human agents when they carry out the above
affairs:
They use human mind and decision when
they coin the name by which they are

Cont’d…
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they bring suits and defend same being
represented by human beings;
it is again human agents that exercise
property ownership and administration, and
sign a contract on the behalf of the legal
person;
But, all such acts performed by the human agent
through representation are deemed to have been
directly undertaken by the legal person, and the
rights and duties arising therefrom would bind
the legal person and not the human agent;

Cont’d…
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Individuals only facilitate transactions and they
then step-out of the legal consequences;
The conferring of personality upon moral persons
and accordingly authorizing them to own property
and conduct business in their own name give rise
to the concept of limited liability;
The fact that the property and patrimony of the
legal person is distinct from that of its owners
means that the legal person is liable to the extent
of its property only;
The liability does not extend to the property/
patrimony of the owners;

Cont’d…
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3) Commencement of Physical Personality
Principle:
Most legal systems accept birth as a time when
personality of a human being begins;
Similarly, Art.1 of the Ethiopian Civil Code
provides “the human person is the subject of
rights from its birth…”;
Birth refers to the complete extrusion of the
baby from its mother's womb either in a natural
way or by a medical operation;
In this sense, the beginnings of natural and legal
existence are simultaneous;

Cont’d…
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Birth alone is a suﬃcient condition to confer
personality under the Ethiopian law, and no other
requirements are attached to it;
Exception:
Because personality begins at birth as a matter of
principle, an unborn body is not a person in the eyes
of the law and can have no rights;
But this general rule is excepted in that personality
may be granted to a merely conceived baby without
waiting for its birth for some purposes;
As an exception, personality of a fetus should be
restrictively construed and it is applicable only in
certain circumstances;

Cont’d…
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The circumstance generally revolves around the
interest of the unborn child;
The law has invented this fiction only for the
purpose of enabling the child (if it is born) to take
a benefit in all matters affecting its interest;
This conception is based on the justification that
a child who has already lost its father while being
in its mother's womb should not be subjected to
further pain of losing a benefit which it would
have secured had it been born before its father's
death;

Cont’d…
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So, when there is an interest of the baby at stake,
the unborn baby in the womb should be regarded
as already born and should be allowed to take
advantage of the interest;
The granting of personality to a fetus is subject
to compliance with three cumulative
requirements;
According to Art 2 of the Ethiopian Civil Code, “a
child merely conceived is considered as though
born where its interest so requires provided it is
born alive and viable”;
Thus, the three conditions are: the interest of the
child must justify the grant of personality, the

Cont d…
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These conditions are cumulative in the sense that
the missing of one suffices to deny the fetus
personality;
In most cases, the interest of the unborn baby
comes into the fore where a father dies before
the birth of the child leaving behind property;
If a baby has to wait until birth to acquire
personality, i.e. if Art 1 of the Civil Code is strictly
applied, it will definitely lose the succession to its
father's property because succession constitutes
a juristic act and being a beneficiary when it
opens necessarily requires personality;

Cont’d…
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Opening of succession is legally made at the
death of the father and the property would
devolve upon those having the capacity and the
right to succeed at such time;
It is to be noted here that the merely conceived
baby will be given personality (before birth) only
for the purpose of the particular interest that
called for the personality;
That means an unborn child would be
recognized as person only to beneﬁt from the
interest at hand, and it has to wait until birth to
acquire personality for all other juridical acts;

Cont’d…
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Acquisition of personality for a particular
interest does not entitle one to exercise it across
the board, and in effect personality at conception
is signiﬁcantly reduced;
Besides the interest of the child, there remain
two conditions: alive birth and viability;
In order to be considered as a person, the baby
must be born alive so much so that, for instance,
personality will never be granted if the fetus is
legally aborted;
Viability refers to the ability to live or the
potential of surviving;

Cont’d…




This is to exclude from the ambit of personality
impotent newly born babies or those incapable of
surviving because of some congenital factors;
The law takes certain presumptions to settle
questions of what baby is viable and what is not;
The law irrebutably presumes that a child that
lives for 48 hours after its birth is viable, so that
no contrary evidence can be admitted to disprove
this presumption;
The law also provides for another presumption in
the negative that a child that dies before 48 hours
after its birth is deemed to be not viable (Art. 4 of
the civil code);

Cont’d…



But this presumption is rebuttable in that it can
be shown to the contrary by proving the child
was viable;
But we cannot challenge the non-viability of the
child by using deﬁciency in constitution as
evidence;
That is to say, if a child dies before 48 hours
following its birth due to a disease he caught in
its mother's womb or due to other congenital
biological deﬁciencies, it will be conclusively
deemed not viable;

Cont’d…


However, external factors that may have caused
the death of the child before 48 hours can be
used to disprove the presumption of non-viability;
If, for instance, the baby dies on the 43rd hour
after its birth because of mishandling by nurses
or by hunger or due to a car accident that
occurred while it was being taken home from
hospital, all such can be employed to challenge
the above presumption by proving that the baby
would not have died had it not been for the
extraneous factors..

Cont’d…



4) Capacity and Incapacity of Physical Persons
Capacity is a natural consequence of being
recognized as a person before the law and it
refers to the authority to enjoy and exercise rights
and duties by oneself;
However, even if personality is a necessary
condition for capacity, it is not a suﬃcient one to
enable one to personally carry out juridical acts
and certain conditions may incapacitate an
individual still possessing personality;
Capacity or incapacity is usually thought of
regarding two aspects—holding rights and duties,
and exercising rights and duties;

Cont’d…



The principle governing the holding of rights and
duties by physical person is that as soon as
personality begins all rights and duties are held by
an individual;
This means that as far as the holding or
enjoyment of rights is concerned, capacity is not
only the rule but an absolute rule;
It can be inferred from Art. 1 of the Civil Code
that entitlement to rights and duties under the civil
law belongs to all individuals by the fact of birth
without any other condition attached to such
holding;

Cont’d…




Capacity is the rule even in the case of
exercising rights and duties a physical person
holds;
Since holding rights and duties is meaningless
without the authority to exercise same, the full
exercise of rights and duties in principle
coincides with their holding;
In the same way that all physical persons enjoy
rights and duties, they are capable of exercising
the same by themselves;
But in certain circumstances it deems
compelling, the law may explicitly declare that
person is considered incapable to exercise
rights and duties;

Cont’d…


Since capacity is presumed in the exercise of
rights and duties (incapacity is very
exceptional), the burden of proving the
existence of incapacity falls on the party who
claims the incapacity;
Thus, in all acts of civil life physical persons
may be assumed that they are dealing with
equals who not only hold but also exercise the
same rights and duties as theirs;

Cont’d…




A physical person may be exceptionally enjoined
from personally exercising rights and duties
because of existence of certain conditions
expressly recognized by the law;
But even in such case, the prohibition is not total, i.
e. the person is not prohibited from exercising
rights and duties altogether but only his personal
exercise is disallowed;
He or she can still exercise rights and duties
through another person by way of representation;
So, the effect of incapacity in exercising rights and
duties is that the exercise would be entrusted to a
third person;

Cont’d…




Let’s now see in brief the legally prescribed
conditions of incapacity and their corresponding
representation institutions;
Some of the conditions are protective of the
interests of the incapable person (e.g. minority,
judicial interdiction) while others are either
preventive or punitive of certain conduct (e.g.
foreign citizenship, legal interdiction);
a) Minority: -
Minority in civil law is an incapacitating condition that
occurs because of age;
A person below the age of 18 years is called a minor and
is incapable of exercising rights and duties by him/

Cont’d…





The law intends that these persons have immature
intellectual faculty and lack the proper degree of
appreciation when they transact acts of civil life;
The law interferes to protect minors from
exploitation by others;
Accordingly, any civil act undertaken by the minor
without authority is subject to invalidation;
A minor may, however, validly perform acts of daily
life, i.e. simple and small matters that are quite
frequently done and that do not signiﬁcantly affect
the legal position of the minor;
There are two institutions of representation
recognized by the law to exercise rights and duties
on the behalf of the minor;

Cont’d…




One is guardianship, which is entrusted with the task of
running the personality affairs of the minor;
Personality interests include food, clothing, shelter, and
schooling, and generally refer to the proper physical and
psychological well being and growth of the minor;
The guardian is responsible for such interests of the
child. The other representative institution is the oﬃce of
tutorship;
Tutor is answerable for the protection and management
of the minor's economic (pecuniary) interests such as
securing income, investing same, running business,
administering property and the like;

Cont’d…




Tutor is answerable for the protection and
management of the minor's economic (pecuniary)
interests such as securing income, investing same,
running business, administering property and the
like;
The incapacity arising as a result of minority may
terminate through a couple of ways;
A minor obviously assumes capacity to exercise
rights and duties him/herself when he/she attains
the age of majority (18 years);
The incapacity of a minor may also come to an end
through emancipation even if the person is still
below the age of eighteen;

Cont’d…




A minor may conclude marriage in exceptional
circumstances approved by the appropriate public
body, and we call this situation emancipation;
This phenomenon suﬃces to end the incapacity of
the minor and releases him/her from the authorities
of the guardian and the tutor;
b) Judicial Interdiction: -
This is a court judgment that declares a person as
incapable because of mental conditions;
The law steps in to protect the interests of persons
with deteriorated mental functioning as a
consequence of insanity, inﬁrmity, senility and the
like;

Cont’d…





Insane persons are believed to be unable to
understand the nature and consequences of their
actions because they have got a mental disease;
Infirm persons are those with serious physical
deformities so that such deformities will have the
ultimate substantial reduction in mental functioning;
For example, if a person is simultaneously deaf-
mute and blind, he/she is deemed to be infirm;
Senility is deterioration in mental faculty because of
old age;
The court can declare the interdiction of the above
persons with mental deficiencies;

Cont’d…




Judicially interdicted persons will lose the authority
to exercise rights and duties as of the date of their
interdiction;
But they, just like minors, exercise rights and duties
they hold through guardians if the interest pertains
to the personality of the incapable and through
tutors where the interest is a proprietary one;
Note that the oﬃces of guardian and tutor have
certain general features in cases of both minority
and judicial interdiction;
The oﬃces are compulsory – it is a civil duty to
become a tutor or a guardian and no consent is
needed;

Cont’d…





The offices are in principle non-remunerative;
A guardian or a tutor gives the service for free;
The tutor/guardian must be a capable person;
It is clear that an incapable person cannot exercise
representing others rights and duties that he/she
cannot personally exercise;
The essence of the distinction between the offices
of guardianship and tutorship is the type of activity
undertaken and it does not mean that two different
persons should hold the offices;

Cont’d…




Both functions can be assumed by a single
person;
The oﬃces are strictly personal in the sense that
they cannot be delegated to the exercise of third
party or they cannot be transferred to next of kin
through inheritance;
c) Legal interdiction: -
This is an incapacity imposed by the law;
A person will be legally interdicted as a result
of the pronouncement of a legally prescribed
punishment for the violation of criminal law;

Cont’d…





The prescribed sentence will deny the person the
capacity to carryout economic affairs;
A legally interdicted person retains capacity over
his personality interests and thus no guardian is
necessary;
A tutor may represent the legally interdicted person
to exercise the latter’s pecuniary rights/duties;
The assumption of the oﬃce of tutorship is, unlike
that of minority or judicial interdiction, voluntary;
The evident reason is that a person who lost his
privilege because of commission of a crime should
not be favored by compelling others to assume the
role of tutorship on his behalf;

Cont’d…



d) Foreign Nationality: -
This is a special incapacity because a person
is prevented from exercising speciﬁed
categories of rights;
For instance, the law states that a foreigner
cannot take part in governmental
administrations;
Likewise, a foreigner cannot (whether
personally or through an agent) own an
immovable in Ethiopia, nor can he enter certain
investment ﬁelds reserved to Ethiopians;

Cont’d…




5)Termination of Physical Personality
Article 1 of the Ethiopian Civil Code also provides
for the way personality of individuals ends;
It states that human person is the subject of rights
from birth to death, meaning personality ends at
death;
In this case too, natural death and legal death of a
person are co-existent;
Declaration of absence can, through interpretation,
also result in termination of physical personality;

Cont’d…



The law says that if a person's whereabouts are not
known for a certain period deﬁned by the law (two
years), a judicial declaration of absence having the
effect of death for all legal purposes may be made;
Among the effects of death are found the opening
of succession of the person and the remarriage of
her/his spouse;
But most importantly, absence with an effect of
death will end personality of the absence;

Ch-III: Law of Contracts




Contracts are matters of daily life especially in
commerce;
Thus, the knowledge of fundamental principles of
contract law is of much help in commercial success;
1) Some Remarks on Obligations
There are all sorts of obligations imposed upon
human beings: moral, religious or social
obligations;
In the area of social obligations, a special
category is that of legal obligations which will
have a binding effect as opposed to the category
known as natural obligations that are not
compulsory or binding on the parties;

Cont’d…



Legal obligations can be further split into penal
and civil obligations;
The speciﬁc concern here is with civil
obligations existing between private citizens;
Civil obligation is a general reference to
juridical acts having distinct legal effects that
exist between two or more persons in their
private relationships concerning something that
one party must undertake towards the other
party;

Cont’d…



A civil obligation consists of a juridical relation
between two persons, of whom the one entitled
to demand performance on the obligation is
called creditor and the one who is obliged to
perform is called debtor;
Thus, the obligation and its correlative right take
the name of debt and credit respectively;
One of the parties occupies the active position
of creditorship and the other assumes the
passive status of debtorship;

Cont’d…
Every obligation has a corresponding right, but
the nature of the right that corresponds to a civil
obligation and enjoyed by the creditor is
particularly a personal right, i.e., it is a right
against a designated person(s) or a deﬁned
class of persons, as opposed to real rights which
are enforceable against any one at all;

Cont’d…



An obligation exists between persons, be they
physical or artiﬁcial, while a real right involves
the association of a person with a thing and the
person can pursue this thing into whosever
hands it falls;
The sources of Binding obligations are generally
law and contract;
In contract, the will of the parties forms the
basis of the obligation; in the absence of a
contract, an obligation cannot arise except by
virtue of the law and therefore all non-
contractual obligations have the law as their sole
source;

Cont’d…



The obligations originating exclusively from the
law may be further founded on civil wrongs or
unjust enrichment;
Thus, obligations usually emerge contractually
by the natural agreement of the parties and by the
law when the legislator provides so in particular
cases of torts and unjust enrichment;
But it is beyond the scope of this study to discus
non-contractual obligations and our focus is on
contractual obligations only;

Cont’d…



2) Essential Notions of Contracts
It is important to be introduced with certain
fundamental quasi-philosophical concepts of
contracts including the deﬁnition given by the
Ethiopian law;
The Ethiopian Civil Code, a systematized
legislative document covering substantial areas
of the civil law, is predominantly inﬂuenced by the
Romano-Germanic civil law tradition;
Accordingly, it shares much of the jurisprudential
aspects of this super legal tradition particularly in
the area of contacts;

Cont’d…


1)

The Civil Code's draftsmanship with a Romano-
Germanic jurisprudential background has
established in contractual matters the theory of the
autonomy of will;
This theory derives from the philosophy of
economic liberalism, and embodies three major
consequences:
Contractual Freedom:
there is no obligation to contract; the
contracting parties are free to determine the
scope of their contract; there is no special form
for contracts because consent is suﬃcient;

Cont’d…



2) Enforceability of contracts:
A contract has the force of a law between
parties;
The contract is compulsory even for the judge
as he has to decide disputes by referring solely
to the provisions stipulated by the parties in
their contract;
3)The relative effect of contracts:
A contract has no bearing on third parties, or
parties outside that contractual engagement
are unaffected;

Cont’d…




Contract is a binding agreement;
It is a promise or set of promises for the breach
of which the law gives a remedy, or the
performance of which the law in some way
recognizes as a duty;
A comprehensive deﬁnition incorporating
important elements is given under Art. 1675 of
the Ethiopian Civil Code;
It states “a contract is an agreement whereby
two or more persons as between themselves
create, vary or extinguish obligations of a
proprietary nature”;

Cont’d…




The contractual elements that emerge out from
dissecting the deﬁnition and other related issues
are stated below;
A) Contracts are agreements
they are based on compulsory exchange of
consent;
There must be an agreement as to every
aspect of the contract, and this agreement
must be meant to be legally binding;
Conversely, there are agreements which do
not give rise to a legal bond and therefore not
contracts;

Cont’d…




For instance, acts of courtesy, a ‘‘gentlemen’s
agreement’’, a free performance of service, or
even a consensual relationship between
neighbors to help each other, are not contracts
even if they are agreements;
Therefore, we can conclude that while all contracts
are agreements, the vice versa is not true;
B) A contract needs at least two persons for its
existence
there cannot be a one-one contract;
The contract is not a unilateral legal instrument
which is an expression of a single person's
wishes;

Cont’d…



Such matters as a will drawing an order of
succession, the acknowledgement of a natural
child, or the resignation made by an employee
are all unilateral expressions of a person's
intention to generate juridical obligations;
But, none of these are contracts because a
contract cannot emerge by a single person's
actions;
Contracts are bi-party juridical acts that exist
between two persons to the minimum;

Cont’d…



C) Privity
a fundamental aspect of contractual liberty is the
concept of privity of contracts;
This is the principle of relative effect of contracts
so much so that third parties are not concerned by
the contracts made by other persons;
The phrase “as between themselves” in the
deﬁnitional provisions of the Ethiopian Civil Code
reveals the concept in that it is only parties to a
contract who are entitled to the beneﬁts or
burdened with the liabilities that arise from the
contract, and not third parties;

Cont’d…



In this regard, a contract is distinguishable from
other collective legal instruments which may be
imposed on persons who did not take part in them;
A decision taken by a general assembly of
shareholders, for instance, does create a binding
obligation on the shareholders of the company
through the operation of the majority rule even
though they had opposed the obligation;
The basis of a contractual obligation is the equality
of the parties, an important aspect of which is its
aﬃrmation of individual liberties;

Cont’d…



Thus, the right to enter into a contract is also the
right not to enter into a contract;
D) The object of contracts is the establishment and
performance of an obligation
an obligation is a legal tie (as deﬁned previously),
an action of being bound by a duty, and here it is a
freely imposed or accepted duty;
Being the instrumentality of establishing a legal
bond, entering into a contract entitles the
contracting parties to claim the assistance of
public force, in the guise of the courts and their
oﬃcials, to obtain the performance of this contract;

Cont’d…



E) Contracts can be concluded for the creation,
variation and extinguishment of obligations:
An obligation may be created anew, may be
amended in the course of its performance, and
ﬁnishes one day;
These three purposes can be achieved by entering
into a contract in each case;
The parties can, through the instrumentality of
contracts, not only create legal bonds that had not
existed before but also vary existing contracts
between them or, if they want to, can totally
extinguish obligation that had previously been in
existence;

Cont’d…


F)Contracts strictly speaking only concern proprietary,
or better, patrimonial issues:
They are legal means of modifying economic
positions of persons – that is why the law regards
contracts as concerned with ''obligations of a
proprietary nature'‘;
Thus, agreements in respect of personal status,
such as consent to marriage, divorce, or ﬁliations,
are not contracts because they are not pecuniary
matters in their strict sense;

Cont’d…



Agreements regarding personality obey different,
special legal regimes;
It does not mean that certain patrimonial
obligations do not derive from such status-bound
situations, such as the payment of alimony;
But it means that they are not governed by the
general law of contracts;

Cont’d…



3) Formation of a Contract
contracts emerge out of the free will of the
contractants;
But, it may be the case that such free will
would be exercised improperly so that the
economic interest that is the subject matter of
a contract may be prejudiced;
A party may enter into a contract because the
other party may have improperly induced him
to do so;

Cont’d…


So, there are two interests at stake here:
1) one is that free will must be reasonably
made and must be legitimate in the
circumstances;
2) the other is that the formed contract should
be enabled to produce the economic effect it
was intended for;
A striking balance between the interests is
reached by the law through the imposition of
certain non-derogable requirements in
contractual undertakings;

Cont’d…



There is a vested interest for the law, being
cognizant of the possibility of abuse or prejudice
of freedom to contract and of the signiﬁcance of
contracts as instruments of economic
performance, to intervene in contractual affairs
and set certain standards;
The law regulates contracts in two ways;
Firstly, there are provisions of the law that are
deemed mandatory-regarding formation of
contracts from which contracting parties cannot
deviate because of the need to ensure the free
exercise of contractual liberty and due to public
policy reasons;

Cont’d…


On the other hand, the law provides for
permissive rules that serve the purpose of
ﬁlling the gap that may be left by the
contracting parties– parties are free to
determine whatever they like on such regard
but the law steps in so as to fulﬁll the
contract should the parties fail to do so;
Accordingly, the law has regarded formative
requirements as essential and, therefore,
compulsory upon the parties to comply with;

Cont’d…









Article 1678 of the Ethiopian Civil Code states that no
valid contract shall exist unless:-
the parties are capable of contracting and give their
consent sustainable at law;
the object of contract is suﬃciently deﬁned, and is
possible and lawful;
the contract is made in the form prescribed by law, if
any.
Four mandatory conditions are evident in the provision
above:
capacity,
consent,
object and
formality;

Cont’d…





Article 1678 of the Ethiopian Civil Code states that
no valid contract shall exist unless:-
the parties are capable of contracting and give
their consent sustainable at law;
the object of contract is suﬃciently deﬁned, and is
possible and lawful;
the contract is made in the form prescribed by law,
if any;
Four mandatory conditions are evident in the provision
above:
I) capacity
II) object and
III) consent,
IV) formality, if required;

Cont’d
1)



Capacity-though a person is subject to rights and
duties from birth to death, there are
limitations(incapacities-general/special) on
certain category of persons to conclude contract;
Minor, Judicial/legal interdicted person and Inﬁrm
persons;
2) Consent
It is expressed in the form of offer and acceptance;
offer and acceptance may be communictaed
through oral, written, signal(gusture-nodding
head, shaking hands, hammering down in an
auction etc/object) and by conduct-earnest
etc(Art.1681)

Cont’d…





Offer is binding on the offeror only if it is
addressed to a speciﬁed person, so
advertisement is no an offer to avoid multiple
acceptance which is creates inconvenience to
determine the binding acceptance;
A party making an offer cannot change his
opinion;
An offeror who changes his offer partially or
totally is liable for any material damage on the
offeree;
It is binding if the offer reaches to the oferee;
He can withdraw it before it reaches to the offeree
to make his offer not binding;

Cont’d…






Consent through acceptance-a positive
acceptance to an offer;
Acceptance is a declaration of intention to
be bound by each and every contents of the
offer;
The offeree may have three possible
answers to the offer:
“Yes” answer,
“No” answer,
Acceptance with reservation/having
reservations or alternative proposals to
some of the contents of the offer;

Cont’d



If acceptance is made with reservation or alternative
proposal, the offeree will take the position of the
previous offeror (Art.1690);
Unless the offeror determines the only way of
communication, acceptance can be made orally, in
writing, by sign, electronic media, or
conduct(performing the offered obligations partly or
wholly);
However, the offeree is not duty bound to accept or
even to respond/no silent amounts to acceptance/(Art.
1682);

Cont’d




Exceptions to Art. 1682:
If there is duty to accept(Art.1683-silence=
acceptance)-e.g., provider of public goods
or services (Art 1690/91), private enterprise
having contract of concession(Arts
3207-3243), if there is contractual obligation
to accept an offer(Arts. 1711, 1957);
Pre-existing contractual relation, silence
amounts to acceptance where:
The offer is to vary, supplement or
complement the pre-existing contract;

Cont’d




The offer is made in writing on special
document;
It contains warning that silence amounts
acceptance;
Defect in consent
it occurs when acceptance or offer do not
indicate what the offeror/offeree really
intended;
causes of defect
wrong information(mistake-about the content
or identity, false statement-, fraud), threat
(duress reverential fear, threat to exercise
rights);

Cont’d…




It causes for invalidation if a mistaken party
demands it so(1808);
Mistake
it must be fundamental-(about the object/nature-
e.g., loan contract for donation/identity);
It must be decisive- a rational person would not
have entered into the contract had it not been the
mistake (Art.1699, 1697);
Fraud (Art.1704)-intentional act of preparing false
information or changing or modifying the content
of the subject matter of the contract in a manner
that cannot be noticeable by ordinary observation;

Cont’d





It is not telling untruth rather making things/
documents to give wrong information;
A defrauded party can claim invalidation where:
The fraud led him to commit a decisive error(had
not been fraud, no contract at all);
the fraud was committed by the party to the
contract or he knew or should have known the
fraud or drived undue beneﬁt;
False Statement(Art.1705)- it is untrue statement
made intentionally, being indifferent whether it is
true or false, or negligently;

Cont’d





Misleading or silence amounts to false
statement(Art 1705);
In principle, false statement is not a ground for
invalidation of contract, except:
There is special relationship b/n the lier
contracting party and the mistaken party;
The relationship should be legally recognized
which creates duty to trust(moral/legal) one
another;
Such special relationship led the mistaken
party to believe the statements of the other
party;

Cont’d…





Threat-a person may be threatened physically or
psychologically to make an offer or accept the
offer.
Duress(Art.1706, 1707)- warning a party that
unless he enters into a certain contract, certain
harm will follow. Duress resulted in invalidation of
contract if:
There is a threat or warning to cause harm-there
should be real/express threat;
The harm is on the person himself, spouse or his
ascendant or descendant;
The harm is on person, life, property, and honor;

Cont’d…





The party believes that the harm will happen
if he does not consent to the contract;
The threat should be serious;
The harm is imminent;
The threat must impress a reasonable
person;
Reverential fear(undue inﬂuence)-(ascendant/
superior) it is a psychological intimidation that
if the person does not give his consent to be
bound by the contract, he will be belittled by
some one or the public in general;

Cont’d







For reverential fear, which is presumed to cause
invalidation of the contract, it must be:
It must make the person to lose certain
advantages;
The loss must go to the beneﬁt of the person who
is the source of reverential fear;
3) Objects of contract
it is where parties actually undertake;
It is the obligations of both parties;
It may be to do, not to do or to give;
So object of contract is an agreement between
the parties to do, not to do or to give something;

Cont’d




There is freedom of contract by which parties can
determine the content of their contract(Art 1712);
However, it is practically impossible to specify all
the possible contents of the contract; hence, the
best approach is to follow the golden rule “do unto
others what you want others do unto you”(Art.1713)
;
Hence, in case there is a dispute, the court would
refer good faith, equity, custom and law;
But, parties, are expected to clearly indicate their
respective obligation;

Cont’d






Freedom of contract, however, is not absolute;
So, under Ethiopian Law, freedom of contract is
subject to:
Clarity of objects (Art.1714)-it must be
ascertained with suﬃcient precision (object
must be deﬁned);
Possibility of object(Art.1715)- no humanly
impossible object;
Legality of the object(Art.1716), e.g., contract
to kill some one;
Morality of the object(Art.1716)-may not be
illegal but immoral, e.g., prostitution contract;

Cont’d





4) Form of contract
it is the way in which the content of the contract
exists or appears to others;
It answers the question how third parties,
including a court ;
So a contract may exist either in written or oral
form;
The law gives the freedom to the parties to
choose a particular form(written or orally);
But, freedom of form is not absolute—it can be
limited by law or offer(1682/2/);

Cont’d…





The limitation may be for evidentiary value, the
necessity of recalling the content and indication of
intention to create legal relation;
Hence, the following contracts must be made in
written form:
Contracts relating to immovable (Art. 1723);
Contracts with public administration (Art.1724)
as public oﬃcials may leave the oﬃce there
should be written document; Oral contract is
also open for corruption;
Contract of insurance and contract of guarantee
(Art. 1725);

Cont’d




Once parties agree to make it in writing, it is not
complete till the form is fulﬁlled(Art.1726);
If agreed to make it in writing, its change must be
made in writing as well(Art.1722);
When parties or the law requires a contract to be
made in writing, failure to comply the form makes the
contract a mere draft(Art.1720);

Cont’d






Effects of Elements of contract- (consent, object,
capacity and form)
Any contract that miss these elements are either
void or voidable;
Void contract is void abinitio, no effect at all as if
it doesn’t exist;
Both voidable and void contracts have the effect
of invalidation;
However, invalidation of voidable contract has
retroactive effect so that denying the contract to
produce any obligation from the moment of its
inception;
A party who received undue payment, therefore,

Cont’d…






Reinstatement is made either by returning by the
payment (thing) received or by paying
appropriate compensation for the thing that
cannot be returned;
A party, in void/voidable contract, should repay it;
Effect of contract- the two major principles are:
freedom and sanctity of contracts;
Sanctity of contract-refers that parties are bound by
their agreement/ based on the moral principle of pacta
sunt servanda;
A contract is also legally binding, if not it is not a
contract(Art.1679);
A contract is a law between/among parties (Art.1731);

Cont’d




•
•
•
•
It is a law, it should be performed, and violating a
contract entails punishment(non-
performance=>payment of damages);
Performance of contracts-
It refers to fulﬁlling one’s own obligation as
agreed;
Who should perform? Art 1740(2):
The debtor ;
By His agent;
by a person authorized by court (curator, );
by law ( tutors, liquidators, trustees);

Cont’d






Sometimes the creditor may insist that the debtor
himself should perform the obligation(Art.1740(1));
This is when the contract or law expressly provides
that the debtor shall perform the contract
personally;
Where personal performance becomes necessary
and when the creditor proves that personal
performance is essential to him(when the
obligation is to do- professional work);
Who may receive payment?
Payment should normally be made to the creditor or his
agent (Art.1741);
Payment may be made to a tutor, liquidator, trustee (Art.

Cont’d



Payment to unqualified person is invalid,
except(Art.1743):
Payment benefited the real creditor even
without his knowledge or express will (e.g.,
paying the debt of the creditor);
Payment confirmed-even if he is not
benefited from the payment—such
confirmation has the effect of ratifying an
act done without authority;

Cont’d






Performance where to be made:
place of performance has implications on cost
of payment, currency for money debt, and
jurisdiction of courts;
The civil code provides three alternatives:
Agreed place;
place where the thing situates at the time of
conclusion of contract(if the thing is deﬁnite
thing);
Residence of the debtor (Art.1755/2/), the law
exempts the debtor from transport cost,
inconveniences, waste of working hours;

Cont’d…






However, the debtor may have more than one
residence, so place of performance is the
principal residence as provided in Art.1775(2)
by the word “normal”;
Performance when to be made?
Time of performance is important to:
Determine transfer of risk;
Cost of maintenance and preservation;
To claim damage for non-performance;

Cont’d








Hence, time of performance may be-
Agreed time (Art.1756(1));
If no agreed time, when the debtor(1756(2)) or
creditor (1756(3)) demands performance;
But, in the following cases, the debtor can postpone
performance time indeﬁnitely (Arts.1757 and 1759);
Simultaneous performance;
Anticipatory breach of contract;
It is when the debtor informs the creditor before
the debt is due that he (debtor) will not perform
his obligation (Art.1757(2));
It is implied from the conduct of the debtor or
from express statements addressed to the

Cont’d



If there is a reasonable suspicion that one party
may not discharge his future obligation, the other
party is not bound to carryout his obligation;
Anticipatory breach under Art 1757(2)is invoked
when time of performance of both sides of the
obligation has already determined by contract and
the party claiming anticipatory breach is duty bound
to perform his obligation earlier than the party who
has intended to breach the contract;
In short, anticipatory breach is a justiﬁcation to
refuse performance, whereas under Art.1789, it is
used as a justiﬁcation to cancel the contract;

Cont’d






Anticipatory breach (Art 1788) should be express
and if implied, default notice should be given;
Insolvency-when a person is declared bankrupt, all
his future debts mature on the day he is declared
bankrupt (Art.1868);
So he has to pay all his future debts on the date he
is declared bankrupt;
But, bankruptcy should be legal, not factual;
Non-performance of Contracts and its remedies
1) Non-performance
According to Art.1731, a contract lawfully formed
is a law among the parties;

Cont’d…








So, parties should discharge their obligations;
Non-performance, however, refers to parties’
failure to perform contractual obligations in
conformity with the terms of the contract and the
law (breach of the contract);
It may be total/partial;
Non-performance affects the interest of other
party, hence it should be remedied;
Remedies include:
forced performance;
cancellation of the contract;
in addition claim damage be made good;

Cont’d






However, before resorting to remedy, a victim party
shall put the other party in default by giving
notice(Art.1772);
Default notice is demanding the debtor to perform
his/her obligation within a certain time limit;
It should be reasonable and should ﬁx a period of
time after the expiry of which he will not accept
performance of the contract;
Exception to the rule (Art.1775)-
The obligation is to refrain from certain acts;
The period of time in which the debtor is assumed
to perform expired;

Cont’d…





The debtor has declared in writing that he would
not perform his obligation;
It is agreed in the contract that notice shall not
be required and the debtor shall be in default
upon the expiry of the time fixed;
Forced/specific performance
It refers to compelling of the debtor to discharge
his obligation personally;
But, specific performance cannot be ordered
unless it is of special interest to the party
requiring it and it can be enforced without
affecting the personal liberty of the debtor;

Cont’d




Special interest- the importance of the obligation
required to be discharged towards the creditor and
no possibility of being discharged otherwise;
Substituted performance- in addition to forced
performance, the law provides substituted
performance, through court authorization, as
remedy for non-performance(Art.1777 and 1778)
which is made at the expense and cost of the
debtor:
Art. 1777-Obligation to do or not to do
Art.1778-substituted performance in respect of
obligation to deliver fungible things;

Cont’d





Cancellation-another remedy for non-performance;
Cancelation vs. Invalidation
While invalidation is making the contract
ineffective through court authorization,
Cancelation is a remedy for non-performance
either by a court or unilaterally;
judicial cancellation-as a rule, cancellation can be
made by a court ,but not all non-performance
leads to cancellation rather the court looks into
good faith of the parties(Art.1785);
Unilateral cancellation-it is cancellation of
contract without resorting a court;

Cont’d




Unilateral cancellation is possible:
If agreed time is provided;
When the debtor failed to honor certain time
limits (Art.1770) (after lapse of period of grace),
Art.1774(after lapse of default notice), and Art.
1775(obligations that must be discharged within
the time ﬁxed);
Where performance becomes impossible
(Art.1788)-a party may cancel a contract even
before the obligation of the other party is due
where the performance by the other party of his
obligations has become impossible or is
hindered so that the essence of the contract is
affected;

Cont’d…




Anticipatory breach of the contract(Art.1789):
When a party informs the other in an equivocal
manner that he will not carryout his obligation;
The party who intends to cancel shall make the
other in default, and no cancellation if the other
produce securities after default notice;
Notice is not however required if the party
informs the other, in writing, that he will not
perform his obligation;

Cont’d




Damages/compensation(Art.1771(2))-another,
but additional or alternative (Art.1790), remedy
for non- performance of contract;
Its purpose is to put the victim party in a position
he would have been had the contract been
performed;
The amount of damages should be equivalent to
the damage done(Arts.1799-1805);
Defense of damage-
Though not in principle, the existence of fault/
grave fault on the part of the creditor can be a
defense(Art.1795/1796);

Cont’d…
 Force majeure(Art. 1791)- “the debtor shall not
be released unless he can show that
performance was prevented by force majeure”;

Ch IV: Contract of Sale




Selling and buying are our daily activities;
A contract of sale is a specific/special contract;
A general contract of law will apply if the special
contract of sale is silent and when conflict arises
between the general and special contracts the latter
prevails;
Definition of Contract of Sale
(Art.2266)- a contract of sale is “a contract whereby
one of the parties, the seller undertakes to deliver a
thing and transfer its ownership to another party, the
buyer, in consideration of a price expressed in money
which the buyer undertakes to pay him.”

Cont’d…








It transfers ownership:
Ownership in economic and legal terms
represents the fullest right a person would have
over a property;
So, it includes the right not only to use the thing
but also to demolish, abandon, alienate, or
donate that thing;
Sale gives a buyer all such powers;
It is an onerous act:
A contract of sale is not a liberality;
It is always made for consideration;
Parties engage in a sale transaction to get some
beneﬁt each, not merely to bind themselves to

Cont’d…







It is a commutative act:
The contract of sale is bilateral–the obligation it
entails is divided between the parties thereto;
The obligation of one party is taken up in
consideration of the obligation of the other;
Trading parties and mercantile thing:
It is needed that parties to a contract of sale are
traders in the sense that they are free from
insolvency or bankruptcy risks;
They must be worth transacting in commercial
terms;
Similarly, the thing that is subject mater of sale
must be that within commerce;

Cont’d…






The thing should be a mercantile one upon which
an exchange through legal sale can be effected;
Traditionally, certain things are outside
commerce;
At the forefront is the human person, this
manifests the prohibition of slavery or the sale of
one’s own organs;
You can’t sell your child or your limbs for that
mater;
It involves the ﬁxing of a price:
A characteristic of the contract of sale is the
price–the monetary counterpart of the giving over
of the good for sale;

Cont’d…



Incidental to this is that the price must be labeled
in a legal currency, that it must be certain or
ascertainable, and that it must be just–not
considerably disproportionate with the value of
the good;
As a ﬁnal note, one needs to distinguish a sale
contract from certain similar types of exchange
modes;
Such contract as hiring sale, supplies, barter,
donation, transfer of rights other than ownership,
and contract of service should not be confused
with sale;

Cont’d…




But, if the party to whom delivery to be made
provides the essential ingredients for the making of
the thing, the contract is best described as service
and not sale;
For instance, A wants a full garment. A brought the
pieces of textile by his own and hands them over to
a tailor to produce the suit. This agreement is not
one of sale, but service.
Barter is also an onerous contract that is concluded
with a view to transfer ownership;
But, there is no monetary price in bartering, and the
exchange is made between things’;

Cont’d…




Price expressed in money terms distinguishes sale
from barter;
Donation on the other hand is a contract of gratuity;
it is not made for consideration;
One party undertakes the obligation to transfer
ownership of a thing to another;
But, sale is a bilateral engagement when it comes
to bearing obligations;

Cont’d…






The transfer of rights other than ownership:
such as usufructs (a right to use and enjoy
the fruit, not to alienate) is in essence
different from sale;
Usufruct is short of the power to alienate or
dispose of a thing, which ownership contains;
In sale, ownership is transferred, not merely
usufruct;
A contract may be concluded for hiring a
thing;
The intention is that the thing will be returned
back to the lessor;

Cont’d…







Contract of sale is also different from a contract
of supplies, where a party undertakes for a price to
make in favor of the other party periodical or
continuous deliveries of things;
This contract relates to the delivery, not to the
transfer of ownership of a thing;
Price is paid for making the supply;
There are also certain “forms of sale” recognized
by law;
They are all forms of sale, but assume different
modes:
sale on trial;
sale with ownership reserved; and

Cont’d…






Sale on trial:
It is a conditional sale which completes only
after the thing is taken by the prospective buyer
and tried to be suitable;
If the thing passes the trial, the sale contract
becomes intact;
Until the trial is made, ownership resides in the
prospective seller and so risk remains with him;
Sale with ownership reserved:
It is a contract whereby the seller reserves to
himself the ownership until the buyer pays the
price of the thing he has taken possession;

Cont’d…




But, until then, the risk is assumed by the buyer, and
the seller may take back the thing;
Finally, there is a type of sale called sale with right
of redemption;
Right of redemption refers to the right the seller
exercises to buy the thing back;
Parties can reach agreement so much so that the
seller can re-buy the thing he has sold within a
deﬁned period of time, usually two years, subject of
course to the refund of the appropriate amount of
price to the buyer;

Cont’d




As a special contract, sale contract involves two
distinct parties: buyer and seller;
“things, "if it can be appropriated by human beings,
is also a deﬁnitional element for sale contract
which is a subject matter of sale contract;
“things” should be understood to mean “goods,” as
it is only goods can be possessed and owned;
“goods” is deﬁned under Art.1126 of Ethiopian
Civil Code that “all goods are movable or
immovable”;

Cont’d






(Art.1127)-“things which have material existence and
can move themselves or be moved by themselves
without losing their individual character are corporal
chattels”;
Formation of Contract of Sale
In addition to the requirements in special contracts,
there must be a satisfaction of requirements under
general contract:
Consent (offer and acceptance);
Suﬃcient clarity of objects;
Lawfulness;
Moral;

Cont’d





The obligation assumed by the buyer is to pay the
price ﬁxed;
If not expressly determined by the parties, it may
be submitted to third party arbitration the
rejection/lack of consensus of which results no-
sale contract at all;
The price can also be determined by taking into
account current price or market price;
Performance of sale of contract
Performance is just to refer discharging the
obligations of:
The seller;
The buyer;

Cont’d…
 Common obligations of both parties (transfer
of risks, expenses and preservation of the
thing), as imposed by the law, custom, or good
faith for the performance of sale contract;

Cont’d



Obligations of the seller:
Obligation to deliver the thing-handing over/
transfer not only the principal thing but also
accessories at agreed time, place , quality and
quantity (actual delivery(1140), constructive
delivery(1145), symbolic delivery-physical
handling of other things that represent the things
sold);
If no agreed time, the seller shall deliver the
thing as soon as the buyer requires him to do
so(Art.2276)—delivery of the thing shall be
simultaneous with the payment of the price
unless agreed to the contrary;

Cont’d



Obligation to transfer ownership;
Obligation to warrant(quality, character or
suitability) the buyer against
dispossession(transfer of an assailable rights)
, defects, and non-conformity:
Warranty is either express(using pictures,
drawings, blue prints, or technical
speciﬁcations, models, samples) or
implied(from the law whether the seller
made it expressly or not);

Cont’d…





Implied warranty is imposed on the seller to
set the interest of promoting higher standards
in the market for the buyer commonly has little
/no opportunity to examine goods carefully
before making a decision to buy them;
Buyers are not in a position to test the quality;
The seller/manufacturer of such goods to
determine their adequacy and quality;
Warranty of dispossession is not workable
where the buyer is:
awareness of the threat of dispossession;

Cont’d…







Where it is excluded by agreement;
When the buyer fails to join the seller in
the proceeding against him;
When dispossession is due to the act of
the buyer;
Obligations of the Buyer(Art.2303)-
Obligation to pay price;
Obligation to take delivery;
Other obligation imposed by the contract;
Obligation to pay price-it is the cost at which
a thing is bought;

Cont’d




The obligation to pay price includes all the
necessary preparation by taking the customs
and practices of usage(e.g., opening bank
account if payment is by check, to give
security for the payment, obligation to accept
bills of exchange);
What price? What if not clearly determined?
Things at current price/market price,
Quantity greater than the agreed-at the will of
the buyer to accept or reject the excess;

Cont’d





Place of payment-if not ﬁxed, the price should be
pied at the place of the seller or at place of delivery
if payment and delivery is agreed to be
simultaneous;
Obligation to take delivery of the thing
(Art.2313)-the buyer shall, after delivery, take
such steps as may be necessary for completing
the delivery of the thing;
Transfer of Risk under Contract of Sales of Movables
Transfer of risk is important in sale contract;
Risk refers to the liability for loss or deterioration
of a thing sold;

Cont’d




The thing sold may be damaged, destroyed or lost;
When goods are destroyed at the hands of the
buyer, risk is said to be transferred to such buyer;
In principle, risk shall be born by the person who is
in a better position of avoiding the risk, or shared
when none of the parties is in a better position of
avoiding the risk;
The person who bears the risk is to cover the
value of the thing which has been damaged or lost;

Cont’d




Under Art.2323 of the Civil Code of Ethiopia,
risk is transferred from seller to the buyer where:
Until delivery (Art.1758(1)) the debtor (the
seller) bears the risk till);
Delay of the buyer, after put in default for not
taking delivery (Art.1758(2));
Generally, risk is transferred when the thing
delivered conforms to the terms of the
agreement;

Ch V: Law of Agency





One may not be able to present more than a
place at a time;
One may not have all the professions/skills on a
certain affairs;
One may no also be able to perform a certain
task due to certain forms of incapacity;
Hence, the facts mentioned so far necessitated
an individual to be represented for certain
activities to be performed in his absence but on
his own behalf;
So, law of agency facilitates and governs such
representations;

Cont’d…






Rationale of Agency:
Reduces the cost of both the principal and 3rd parties;
It satisﬁes the special requirements for
professional need of the principal;
It reduces the inconveniences to deal with
everything personally;
The need to represent legal persons as they
have no mind and physical appearance;
The need to overcome incapacities(to do
juridical acts);

Cont’d…








The internal contract- (Formation and
Requirements)
(Art. 2179)- two sources of agency;
By agreement;
By law
By agreement presupposes the existence of two
separate contract:
The internal contract (agent and principal);
The main contract(agent and 3rd parties)
Agency is one of special contracts, so the
elements of valid contracts in general should be
satisﬁed(Art.1678);

Cont’d…








Capacity;
Deﬁned object;
Lawful, moral and possible object;
Form, if any,
Scope of authority
The scope of power of the agent is determined
by internal contract;
If not speciﬁcally determined, it should be
determined based on the nature of the
transaction(Art.2202);
Agency may be: special or general(Art.2202(2));

Cont’d…







General Agency:
The power is conferred in general terms (expressed
like-all ‘many affairs,’ ‘any thing related to property,’
‘any affairs which I’m called to perform’);
They shall be limited to acts of management on the
preservation or maintenance of those affairs or
rights of the principal;
An agent is empowered only to sustain the rights of
the principal not to dispose;
Acts of management include:
acts done for the preservation/ maintenance of
property;
lease for terms not exceeding three years;

Cont’d…









collection of debts;
investment of income;
discharge of debts;
sale of crops;
sale of goods intended to be sold; and
sale of perishables;
Special Agency
It is d/t from general agency as the agent is
empowered to dispose the rights of the
principal in special agency;
It is also termed as acts of disposition;

Cont’d










The agent is to act in a particular transaction, affairs
speciﬁed in the contract and their natural consequences
(Art.2202(2));
The act to be performed by the agent is speciﬁcally
provided including sale of a house, lease of land etc;
A power in special agency is broader than general
agency;
Acts that require special authority:
Alienating/ mortgaging real estate (acts of disposition);
Investing capital (not income);
Signing bills of exchange;
Effecting settlement and consenting to arbitration;
Making donations;
Bringing and defending an action;

Cont’d…





Modes of Representation(responding to 3rd parties)
:
Disclosed agency(“contracts are made by an
agent in the name of the principal within the
scope of his power is deemed to have been
made by the principal”)Art.2189(1);
Partially disclosed agency(an agent is
contracting in his own name though the third
party knows he is an agent);
Undisclosed agency(neither the name nor the
status of the agent is disclosed);
Only disclosed agency do have the effect of
agency;

Cont’d…







Duties of the agent(arising from agreement, law
and incidental) are:
Performance- since it is contract, it should be
performed;
Duty to protect the interest of the principal,
including avoiding conﬂict of interest;
Conﬂict of interest may occur:
When the agent contracts with 3rd parties;
When the agent contracts with the principal;
When the agent contracts with himself;

Cont’d…



(Art. 2209)an agent should act to the exclusive
interest of the principal and should not drive any
beneﬁt without the knowledge of the principal;
Diligence required from him-act as a bonus pater
familias, with care and maximum skill etc;
Duty to account–he shall account for the
principal about his management affairs; shall
inform without delay that he has accomplished
his agency;

Cont’d…







Duties of the principal:
Remuneration if the contract is not for
gratuitous(Arts. 2219 & 2220);
Duty to advance money to the agent for carrying
out the agency (Art.2221);
Duty to reimburse expenses(Art.2221);
Liabilities of principal, agent and third parties
Sometimes the agent may work with a lapsed
authority or an authority departed from its terms;
In principle, only disclosed agency have the effect
between principal and 3rd party; but there are
exception when the principal ratiﬁes unauthorized
act (Art.2264);

Cont’d



The agent shall be personally liable to 3rd party in
two cases:
Where the agent acted beyond the scope of
his power;
And/or the agent acted in his own name
unless the third party is aware of the fact;

Chapter Six
Labour Law






6.1 Sources of Regulation
The sources of labour laws are International and National laws.
Some of the International origins are Forced Labour Convention, ; Freedom of
Association and Protection of the Right to Organize Convention; Employment
Service Convention; right to Organize and Collective Bargaining convention ;
Abolition of Forced Labour Convention; Minimum Age Convention;
Occupational Safety and Health Convention; Termination of Employment
Convention; and Private Employment Agencies Convention.
The national origin may be classiﬁed into public and private ones.
The public acts include the FDRE Constitution, the Labour Proclamation No
377/96 together with its amendments Proclamation No 494/98 and decisions
of the Federal Supreme Court Cassation Bench.
The private acts are instruments of private nature but binding as though they
are law. Thus, strictly speaking they are not law, all the same they are


assimilated to law. These are Contracts of
employment, Collective agreements and Work
rules. The ﬁrst two instruments are bilateral ones
while the third one is a unilateral instrument.
Collective agreement" means an agreement
concluded in writing between one or more
representative of trade unions and one or more
employers or agents or representatives of
employers organizations.







Whereas “work rules" means, subject to the safety and
the prevention", of accidents, disciplinary measures and
its implementation as well as other conditions of work.
6.2 SCOPE OF APPLICATION
The labour law is applicable to employment relations based on a contract of
employment that exist between a worker and an employer except the
followings.
contracts for the purpose of upbringing, treatment, care or rehabilitation;
contracts for the purpose of educating or training other than apprentice;
managerial employee who is vested with powers to lay down and execute
management policies by law or by delegation of the employer depending on
the type of activities of the undertaking with or without the aforementioned
powers an individual who is vested with the power to hire, transfer, suspend,




lay off, assign or take disciplinary measures against
employees and include legal service head who
recommend measures to be taken by the employer
regarding managerial issues by using his
independent judgment in the interest of the employer;
contracts of personal service for non-proﬁt making
purposes;
contracts relating to persons such as members of the Armed Force,
members of the Police Force, employees of state administration, judges of
courts of law, prosecutors and others whose employment relationship is
governed by special laws;
contracts relating to a person who performs an act, for consideration, at his
own business or professional responsibility.

6.3 Formation of Contract of Employment





6.3.1 The Element of a Contract of Employment
A contract of employment is formed where a person agrees directly or
indirectly to perform work for and under the authority of an employer for a
deﬁnite or indeﬁnite period or piece work in return for wage.
It shall be stipulated clearly and in such manner as that the parties are left
with no uncertainty as to their respective rights and obligations under the
terms thereof; and
it shall specify the type of employment and place of work the rate of wages,
method of calculation thereof, manner and interval of payment and duration
of the contract.
But, it shall not be concluded for the performance of unlawful or immoral
activities and shall not lay down less favorable conditions for the employee
than those provided for by law, collective agreement or work rules.

6.3.2 Form of Employment Contract




As regards to forms of contract, the labour law regime in principle does not
require an special form for contractual validity.
Contract of Employment made in writing shall specify the name and address
of the employer; the name, age, address and work card number, if any, of the
worker; the agreement of the contracting parties on the type of employment
and place of work the rate of wages, method of calculation thereof, manner
and interval of payment and duration of the contract; and the signature of the
contracting parties.
However, where the contract of employment-is not made in written form, the
employer shall, within 15 days from the conclusion of the contract, give the
worker a written and signed statement containing the requirements
mentioned above in written form of contract.
If such written statement is not wholly or partly objected to by the worker



within 15 days from the date of receipt, it shall be
deemed a contract of employment concluded
between the worker and the employer.
Nevertheless, failure to comply with the elements
of written contract and non-reducement of other
form of contract to written contract does not
deprive the worker of his rights under labour
Proclamation.

6.4 Duration of the Labour Contract





Any contract of employment shall be deemed to
have been concluded for an indefinite period except
the for followings contract of employment for
definite period or piece work:
the performance of specified piece work for which
the employee is employed;
the replacement of a worker who is temporarily
absent due to leave or sickness or other causes;
the performance of work in the event of abnormal
pressure of work;




the performance of urgent work to prevent damage
or disaster to life or property, to repair defects or
break downs in works, materials, buildings or plant of
the undertaking;
an irregular work which relates to permanent part of
the work of an employer but performed on an
irregular intervals;
seasonal works which relate to the permanent part
of the works of an employer but performed only for a
speciﬁed period of the year but which are regularly





repeated in the course of the years;
an occasional work which does not form part of the permanent activity of the
employer but which is done intermittently;
the temporary placement of a worker who has suddenly and permanently
vacated from a post having a contract of an indeﬁnite period for not more
than 45 consecutive days;
and the temporary placement of a worker to ﬁll a vacant position in the period
between the study of the organizational structure and its implementation for
not more than 45 consecutive days.
In addition, an employee may be employed for a probation period for the
purpose of testing his suitability to a post in which he is expected to be
assigned and such probation period shall be made in writing and shall not
exceed 45 consecutive days.

6.4 Modiﬁcation of Contract of Employment


Conditions of a contract of employment which are
not determined under the labour Proclamation, may
be modiﬁed by collective agreement; work rules or
written agreement of the parties.
But, amalgamation or division or transfer of
ownership of an undertaking shall not have the effect
of modifying a contract of employment.

6.5 Obligation of the Employer and Employee




6.5.1 Obligations of an Employer
An employer shall in addition to special stipulations
in the contract of employment have the following
obligations:
to provide work to the worker in accordance with the
contract of employment and to provide him with
implements and materials necessary for the
performance of the work;
to pay the worker wages and other emoluments; to
respect the worker's human dignity;




to take all the necessary occupational safety and
health measures and to abide by the standards and
directives to be given by the appropriate authorities
in respect of these measures;
to defray the cost of medical examination, of the
worker whenever such medical examination is
required by law or the appropriate authority;
to keep a register of workers particulars; to give the
worker a certiﬁcate of service upon termination of a
contract of employment or whenever the worker so
requests;





to allow and respect all the leave and rest day of the
worker;
to pay legal payments for lawful termination of work ,
compensation for unlawful termination ,and
disability because of occupational accident and
diseases;
and to observe the provisions of this Proclamation,
collective agreement, work rules, directives and
orders issued in accordance with law.
It will be unlawful acts to the Employer if he:





impedes the worker in any manner in the exercise of
his rights or take any measure against him because
he exercises his right;
discriminate against female workers, in matters of
remuneration, on the ground of their sex;
terminate a contract of employment contrary to the
provisions of the Proclamation;
coerce any worker by force or in any other manner to join
or not to join or to cease to be a member of a trade union
or to vote for or against any given candidate in elections
for trade union oﬃces;



require any worker to execute any work which is
hazardous to his life;
and discriminate between workers on the basis of
nationality, sex, religion, political outlook or any other
conditions.

6.5.2 Obligations of the Workers





Every worker shall have the obligations:
to perform in person the works;
to follow instructions given by the employer based
on the terms of the contract and work rules;
to handle with due care all instruments and tools
entrusted to him for work;
to report for work always in ﬁt mental and physical conditions; to
give all proper aid when an accident occurs or an imminent danger
threatens life or property in his place of work without endangering
his safety and health;





to inform immediately the employer any act which
endangers himself or his fellow workers or which
prejudice the interests of the undertakings;
And to observe the provisions of Labour
Proclamation, collective agreement, work rules and
directives issued in accordance with the law.
It will also be unlawful acts for the Worker if she:
intentionally commit in the place of work any act
which endangers life and property;

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