Business Law PPt.pptx

Chapter one
Introduction to law
DEFINITION OF LAW
What is Law?
 Jurists have defined law differently from different
point of views.
 Defining the term ‘law’ is not an easy task because
the term changes from time to time and different
scholars define the term variously.
 Definition of the term may vary due to the
different types of purposes sought to be achieved.

Conti..
John Austin also asserted that law is the command of
the sovereign backed by the threat of punishment.
According to Black’s Law Dictionary law consists of
rules of action or conduct.
These rules are issued by an authority. In addition,
these rules have binding force and are obeyed and
followed by citizens.
Sanction or other legal consequence may help the
law to be abided by citizens

Conti…
• In general, law may be described in terms
of legal order tacitly or formally accepted
by the society and enforced.
• It is a body of binding rules sufficient
compliance of them is ensured by some
mechanism accepted by community.
• At all law is a body of binding rules backed
by sanction.

MAJOR THEORIES OF LAW
• Definitions given to the term law are as
many as legal theories
• Different legal theories developed
throughout societies. Though there are a
number of theories, only four of them are
dealt with here under.
• They are Natural, Positive, Marxist, and
Realist Law theories.

NATURAL LAW THEORY
• Natural law theory is the earliest of all theories. It was
developed in Greece by philosophers like Heraclitus, Socrates,
Plato, and Aristotle.
• According to Natural law theory law is not made by person
but controls all human beings of the world. Such laws do not
vary from place to place and from time to time and even used
to control or weigh the laws made by human beings.
• These laws do not made by human being as natural laws.
Natural law is given different names based on its
characteristics. Some of them are law of reason, eternal law,
rational law, and principles of natural justice.

POSITIVE LAW THEORY
Positive law theory is also called, imperative or analysts
law theory. It refers to the law that is actually laid down
by separating “is” from the law, which is “ought” to be. It
has the belief that law is the rule made and enforced by
the sovereign body of the state and there is no need to
use reason, morality, or justice to determine the validity
of law.
According to this theory, rules made by the sovereign are
laws irrespective of any other considerations. These laws,
therefore, vary from place to place and from time to time.
The followers of this theory include Austin, Bentham and
H.L.A Hart.

Conti..
• For these philosophers and their followers law
is a command of the sovereign to his/her
subjects and there are three elements in it:
command; sovereign; and sanction. Command
is the rule given by the sovereign to the
subjects or people under the rule of the
sovereign. Sovereign refers to a person or a
group of persons demanding obedience in the
state. Sanction is the evil that follows
violations of the rule.

MARXIST LAW THEORY
• Marxists believe that private property is the basis for the
coming into existence of law and state.
• They provide that property was the cause for creation of
classes in the society in which those who have the means
of production can exploit those who do not have these
means by making laws to protect the private property. They
base their arguments on the fact that there was neither law
nor state in primitive society for there was no private
property.
• The theory has the assumption that people can attain a
perfect equality at the communism stage in which there
would be no private property, no state and no law

REALIST THEORY OF LAW
• Realist theory of law is interested in the actual working of
the law rather than its traditional definitions.
• It provides that law is what the judge decides in court.
According to this theory, rules not put to use to solve
practical cases are not laws but merely existing as dead
words and these dead words of law get life only when
applied in reality.
• Therefore, it is the decision given by the judge but not
the legislators that is considered as law according to this
theory. Hence, this theory believes that the lawmaker is
the judge and not the legislative body

BASIC FEATURES OF LAW
Analyzing the features and nature common to all laws
would help us to understand the concept of law.
Among these features and natures, the ones
considered as essential include generality, normativity
and sanction
A. Generality
• Law is a general rule of human conduct. It does not
specify the names of specific persons or behaviours.
Hence, its generality is both in terms of the
individuals governed and in terms of the social
behaviour controlled.

Conti…
• The extent of its generality depends on-on whom the
law is made to be applicable.
• Consider the following illustrations.
• “Every one has the right to life, liberty and the
security of a person.”
• This law is made to be applicable to every person on
this world. Therefore, it is universal.
B. Normativity
Law does not simply describe or explain the human
conduct it is made to control. It is created with the
intention to create some norms in the society.

Conti..
Law creates norms by allowing, ordering or prohibiting
the social behavior. This shows the normative feature of
the law. Based on this feature, law can be classified as
permissive, directive or prohibitive.
C. Sanction
Each and every member of a society is required to follow
the law. Where there is violation the law sanction would
follow. Sanction is a penalty or coercive measure that
results from failure to comply a law. The main purpose of
sanction is to prompt a party (a wrong doer) to respond.
In other words, sanction will make the wrong doer to
think that s/he made a fault and s/he should correct it.

FUNCTIONS OF LAW
• Today the following are taken as important
functions of law
A) Social control – members of the society may
have different social values, various behaviours
and interests. It is important to control those
behaviours and to inculcate socially acceptable
social norms among the members of the
society. There are informal and formal social
controls. Law is one of the forms of formal
social controls.

B) Dispute settlement
Disputes are un avoidable in the life of
society and it is the role of the law to settle
disputes. Thus, disagreements that are
justiciable will be resolved by law in court
or out of court using alternative dispute
settlement mechanisms

C) Social change
A number of scholars agree about the role of law in
modern society as instrument to social change.
Law enables us to have purposive, planned, and
directed social change Flexibility of law provides some
measure of discretion in law to make it adaptable to
social conditions.
If law is rigid and unalterable, it may not respond to
changes spontaneously which may lead to resentment
and dissatisfaction among the subjects and may even
result into violence or revolution. Therefore, some
amount of flexibility is inevitable in law

Business Law
• Business law (also known as Commercial law) is the body of
law that governs business and commercial transactions.
• Business law encompasses the law governing contracts, sales,
commercial paper and insurance, agency, employment law,
and business organizations and also introduction to law and
law of person.
• Business law may include issues such as selling, or buying a
small business, managing a business, dealing with employees,
or dealing with contracts, among others
• Business Law does not refer to a single branch of law. Rather
it describes those parts of the law most closely connected
with typical business activities.

Sources of Law
• Sources of law may refer to either the authority from which the
laws derive their force/validity/ or the material source of law
which is indicating to the content or the matter of law.
• In short, the sources of law may be categorized as formal
sources and material sources of laws
• Formal source of law is referring to the source from which the
rule of law derives its force and validity. It is expressing the will
of the state as manifested in statute or decision of the court.
• The power of making all laws is the people or their
representatives, and none can have any force which is derived
from any other source.

Conti…
• The material source of law supplies the matter and
the content of law such as custom, religion, opinion
of highly qualified text writers,
agreement(conventions) etc.
• The material sources of law again divided in to
authoritative material source and persuasive material
source.
• Authoritative material sources also called legal
material sources are sources which are binding in the
judicial decision in that the judges are bound to
follow them for a decision they apply to a dispute
before them.

Conti..
• Treaties made under the authority of the
Constitution are declared to be obligatory on courts,
proclamations and regulations enacted as per the.
• Persuasive material sources also called historical
material sources are sources not binding in a judicial
decision. They influence the course of legal
development but they are not speak with the
authority. They are purely persuasive they include
opinion of text writers, foreign laws, reports, etc.

Classifications of Laws
• Classification of law refers to the systematization
of the law based on subject matter.
• Hence, grouping laws based on various respects
taking some commonalities into account. For a
scientific and systematic study of law, the law can
be classified into:
• Public Vs. Private
• International Vs. Domestic
• Substantive Vs. procedural
• Civil Vs. Criminal

Public versus 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.
– E.g. The Constitution, the Criminal Law, Tax law,
Administrative Law
• 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
• E.g. Family law, contract law, property law, agency
law, commercial law, succession law, tort law

International Vs Domestic law
• International law is the principle of laws which
governs the relations between countries
(States) and sometimes States and
international organizations. It concerns about
sovereignty, trade, and communications, and
boundary disputes, use of ocean and water
bodies and so on.
• National laws (Domestic Laws) are those laws,
whether of public or private nature applied
inside a country. So it includes all laws within a
country.

Substantive and Procedural Law
• Substantive law includes all laws that define,
describe, regulate and create legal rights and
obligations. This body of law establishes acts and
situations producing effect at law E.g. Right to
marry, right to vote, right to privacy
• Procedural law It sets out the methods of enforcing
the rights established by substantive law. 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 E.g. Civil, Criminal
Procedure and evidence law

Civil versus Criminal Law
Civil law is concerned with the duties that exist
between persons or between citizens and their
government (the latter as a ordinary legal person),
excluding the duty not to commit crimes.
Criminal law is always public where as civil law
is sometimes public and sometimes private.
Criminal law, in contrast to civil law, is
concerned with wrongs committed against the
public as a whole.
In a criminal case, the government seeks to
impose a penalty on an allegedly guilty

Chapter 2: The Law of Persons
In this chapter, we will address:
The Meaning of Person
Commencement of Personality in Natural
Persons
Commencement of Personality Before Birth
Commencement of Personality in Artificial
Persons
Attributes of Legal Personality
The Termination of Personality

The Meaning of Person
• The term person encompasses all beings bearing rights and
duties.
• Yet, there can be human beings who are not considered as
persons or holders of rights and there can be persons or holders
of rights and duties who are not human beings.
So what do we mean by a person according to the law?
• Any one who(which) is legally vested with rights and duties.
• There are two types of persons:
i. Natural Person; include all human beings who are the subjects
of rights and duties from birth unto death.
ii. Legal person – include beings, which are given rights and duties
by the operation of the law. legal persons are entities other than
natural persons that are endowed with legal personality by
virtue of the law. they are also called artificial, juristic, fictitious,
juristic and moral persons. They include associations, share
companies, private limited companies, government
organizations etc.

Commencement of Personality in Natural Persons
• As a rule, in the case of human beings, personality
commences or starts at the moment of birth(Refer Art
1 of Civil Code, Ethiopia).
• In other words, a human being becomes capable of
having rights and duties from the moment of birth.
Exceptionally, personality is granted to an unborn or
merely conceived child up on the fulfillment of three
conditions:
i. the child is born alive;
ii. the child must be born viable
iii. The conceived child interest shall demand this
recognition

Conti..
• Viability refers to the ability to live or the potential of
surviving. 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. 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.
• 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.

Capacity of Physical Persons
• Enjoyment and exercise of rights are not the same. To
enjoy rights means to have, to hold rights. A physical
person enjoys rights, holds rights or is the subject of
rights starting from the time of birth. And the law
presumes capacity. Every physical person is capable of
performing all the acts of civil life unless he is declared
incapable by law.(Art. 192
• The law presumes that every physical person is capable
of exercising a right. Capacity is the ability to make or
exercise a juridical act.
• Juridical acts are acts which are legally binding and
enforceable by law. All persons enjoy rights without
exception, but all persons do not have the same capacity
to exercise rights. Some persons are incapable of
exercising rights. The law calls these persons incapable
persons.

Incapacity of Physical Persons
• Incapacity of physical person is an exception to the rule that
every physical person is presumed to be capable of exercising a
civil acts.
• General incapacity is based on the age or mental condition of
persons or on sentence passed upon them; and special
incapacity which is based on nationality. General incapacity,
therefore, includes minors, insane and infirm persons, judicially
interdicted and legally interdicted persons.
A. Minors
• A minor is a person of either sex who has not attained the full
age of eighteen years. minors are taken as incapable to engage
in juridical acts.

B. Insane and Infirm Persons
• Insane persons are persons who are not capable to understand the
importance of their actions as a consequence of their insufficient
mental development, mental disease or senility whereas, infirmity
includes feeble-minded, drunkards or habitually intoxicated persons
and prodigals shall be assimilated to such persons in appropriate
cases.
• Insane persons may be of notorious or non notorious. Notorious
insane persons are persons who are an inmate of a hospital or of an
institution for insane persons or of a nursing home as a result of his
mental condition for the time for which he remains an inmate. non
notorious insanity of a person shall be deemed where he lives in a
community whose number is below two thousand inhabitants and
when his movement is restricted by those who are around him as
required by his mental conditions.

C. Judicially Interdicted Persons
• The court may sometimes interdict certain categories
of individuals due to their mental or physical
problem.
• So the law steps in to protect the interests of persons
with mental problem as a consequence of insanity,
infirmity, senility and the like.
• Judicially interdicted persons will lose the authority to
exercise rights and duties as of the date of their
interdiction. But they exercise rights and duties they
hold through guardians if the interest pertains to the
personality of the incapable person and through
tutors where the interest is a proprietary one.

D. Legal interdiction
• This kind of incapacity emanates from the law due to
the commission of a certain crime.
• A person will be legally interdicted as a result of the
pronouncement of a legally prescribed punishment
for the violation of criminal law.
• 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.
• special incapacity which is based on nationality

Commencement of Personality in Artificial Persons
• Legal personality is an artificial or fictitious creation of law.
These artificial persons acquire legal personality in different
mechanisms. An artificial person such as associations, share
companies, private limited companies or public sectors become
persons or beings capable of having rights and duties either of
the following conditions:
1. Upon the enactment of establishment proclamation or
regulation with no other conditions attached to it.
2. Registration in the commercial register.
• Once the entities get legal personality they are recognized as
equal before the law with the human person.

Attributes of Legal Personality
• The following are some the most important features of artificial persons:
1. Having a name: Names affect the legal position of a person. Names
are mechanisms of identifying the civil identity of a specific person in
the society and of the legal status.
2. Legal Standing-They can sue and be sued during their own name.
Since artificial persons have their own legal existence distinct from
their associates, they can sue and be sued in their own name.
3. Juridical Acts- Artificial persons can conclude certain juridical acts like
contracts in their own name.
4. Discharge Legal Duties- They pay tax in their own name as opposed to
the names of their associates or members.
5. Own and Administer Property- They can administer their property in
their own name.

Termination of Personality
Natural person In principle, the death terminates natural
personality.
• Exceptionally, the declaration of absence. If a certain person is
disappeared and no news of him has heard for two years any
interested party may apply to the curt for the declaration of
absence. If once the court declares that the person is absent the
absentee is considered dead.
Artificial Persons may terminate their personality in either of the
following ways:
1. By the operation of the law;
2. By the agreement of the members of the Body Corporate;
3. Lapse of time according to the Constituent Document(CD)

Chapter 3: Law of Contracts
• Law of contract refers to the body of rules
governing the formation, performance and
enforcement of contracts.
• In Ethiopian Law, contract is defined to be “an
agreement whereby two or more persons as
between themselves create, vary or extinguish
obligations of proprietary nature.”(Ref. Art
1675 of Civil Code).

The Essential elements of a Contract
• Article 1678 of the Civil Code provides requirements
that should be fulfilled to conclude a contract validly:
1. The parties involved must have capacity to contract.
2. There must be an agreement, i.e. consent reached at
by a process of offer and acceptance.
3. The agreement must have sufficiently defined, lawful
and possible object.
4. The contract must be concluded in special form such
as writing whenever needed by law.

Formation of Contract
Validity Requirements of a valid Contract
 A valid contract is formed if it fulfills the following
yardsticks that the state uses to check whether or not
persons have made a contract. They are called validity
requirements or elements of a valid contract and include:
1) Capacity;
2) Consent ;
3) Object and
4) Form, if any . Article 1678 CC
 While all contracts are expected to fulfill the requirements
of capacity, consent and object; form is required only for
few contracts . That is why it is phrased as ‘form, if any’.

1. capacity
 hope you are familiar with the concept of capacity from
your law of persons course. so, what is capacity? Is there
distinction between capacity of natural persons and of
artificial persons?
 In general, we can say capacity, in both cases, is the power to enter
into legal transactions.
 Regarding the capacity of natural persons, which is the concern of
this course; Minors, judicially interdicted persons (Insane & infirm)
and legally interdicted persons cannot enter into a contract.
 when a legally interdicted person enters into a contract which he
was prohibited from such is not limited to incapacity but also
extends to illegality as per Art 1716.
 There are also some special incapacities such as nationality and
functions of persons that prohibit the person from entering into a
contract as provided under Art. 194 of the CC.

2. Consent
 Consent is a declaration of intention to be bound by an obligation. A
person has to express his willingness (agreement) to create an
obligation on himself, or give up some or all of his proprietary
rights.
 Consent is one of the defining features of individual autonomy and
freedom of contract.
 We cannot imagine a contract without the valid consent of the
parties to the contract.
 as addressed in the opening of the 1st chapter too, mere domestic
or social agreements are not usually intended to be binding and,
therefore, are not contracts. This is because these agreements or
promises are only moral agreements or promises which lack state
backing for their enforcement .
 A binding contract, however, is usually in the nature of a
commercial bargain, involving some exchange of goods or services
for a price.

Conti..
The consent given in any contract shall be free and full. It should
be free from defects like duress, frauds, lesion, and mistakes.
• Consent is a defect-free mutual agreement by the contracting parties
 There must be a willingness( intention) on the part of the
contractants to make their undertaking legally binding.
 If the consent expressed in the form of offer and acceptance does
not indicate what the offeree or the offeror really intended, then,
there exists defect in consent.
 The common causes of defect in consent are:
1) Wrong information w/c comprises mistake, false statement and
fraud;
2) Threat w/c comprises duress, reverential fear, threat to exercise a
right &
3) Lesion.
 The defect in consent may be a cause for invalidation of contract

Communication of Consent
Consent is expressed either in the form of offer or
acceptance which are ways of communicating one’s
own intention to be bound by an obligation.
Offer or acceptance is declared to another person by
ordinary ways of communication which are:
1) Oral, when the offeror uses his voice to tell to the
offeree the contents of the offer
2) Written, all the elements of offer are reduced in
writing on a paper or electronics
3) Signal normally in use or by conduct (Art.1681 (1).
4) Conduct e .g earnest

Offer
Offer
An offer is a proposal to enter in to a legally
binding obligation.
offers must be definite and certain.
offer must be communicated to the beneficiary.
Article 1687(a), Civil Code
Offer differs from declarations of intention such as
newspaper ads, catalogues, circulars, tariffs, price
lists, display of goods, etc. These are said to be
invitation of offers and not offers.

Acceptance
 Acceptance
Constitutes a positive response(assent) to the terms of
the offer.
It has be in exact conformity with the terms of the offer.
Otherwise, it becomes a defective acceptance or a
new-offer (counter-offer).
Acceptance and offer are usually made in written or
oral form.
. However, they may be made by signs and conduct.
NB. In case of distance contracts/by telephone/mail,
etc/, the place of reception of the offer or the place of
sending the acceptance is where the contract is made.

Object (obligation)
The object of a contract refers to the obligations
to perform something.
Where a car is sold, it is the seller’s obligation to
hand over or convey the car to the buyer. The
buyer’s obligation to pay the price.
The object of the contract must be sufficiently
defined, legal and moral and possible.
A contract whose object is not sufficiently
defined, illegal or impossible are of no effect or
void i.e. non-existent from the very inception
and creates no legal rights whatsoever.

4.Form of a Contract
Form is the outward appearance of the contract.Form is not always
neccesary element.
 The law requires writing for the following contracts.
• Contracts relating to immovable‘s. Article 1723, Civil Code
• Contracts made with public administration Article 1724, Civil Code
• Contracts of guarantee Article 1725, Civil Code
• Contracts of insurance Article, 1725, Civil Code
• Contracts of loan where the amount lent exceeds birr five hundred
Article 2472, Civil Code Failure to comply with such a requirement
entails the nullity of the contract.
• the contract is not said to comply with the formal requirement of
written form unless it is attested by at least two witnesses. The
witnesses must also be capable

Consequences of Validity Requirements
 Validity requirements also known as elements of contract, as
addressed above, are consent, object, capacity and form.
 Generally a contract that misses any of these elements is
either void or voidable.
 A contract is said to be void when the object or form
elements are missed.
 If the object is unclear (undefined), unlawful, impossible or
immoral, the contract is said to be void contract.
 Likewise, if the especial form prescribed by law or agreed by
parties is not complied with, the contract is said to be void
contract.
 On the other hand, a contract is said to be voidable if it
contains defect in consent or capacity (Art.1808 (1).

Effect of Contracts
• The two major principles of contract are freedom of
contract and sanctity of contract. Sanctity of contract
indicates that parities are bound by their agreement.
There is Latin saying “pacta sunt servanda’ which means
that a person is bound by his words.There is also an
equivalent Ethiopian proverb, ‘failure to keep a word is
worse than losing a descendant
• Effect of a contract implies that it becomes the law of
the parties.So, effects of contract are interpretation,
performance, variation and non-performance.

Interpretation of Contract
Since a contract is a law, it may be
interpreted.A law is interpreted when it is
vague,silent,illogical,ambiguous,andcontradi
ctory.So interpretation is giving meaning to
the provisions of the contract. If the
provision of the contract is clear, there is no
need to interpret (Art 1733). Law is an
express intention of the legislators.
Interpretation is, therefore, searching the
intention of the parties (Art. 1734(1).

Variations of Contracts
Variation is making amendments to the
provisions of a contract. Variation makes
change on the object of the contract. Variation
of Contract is equivalent to amendment of law.
Variation normally becomes necessary because
of fundamental changes in circumstance that
the parties or the legislator does not want to
tolerate. Minor changes are always expected
and may not lead to variation of Contract.
Contract may be varied by the parties, legislator
and judiciary.

PERFORMANCE OF CONTRACTS
Performance is the carrying out of the obligations
imposed by a contract.
WHO SHALL PERFORM?
The obligations under the contract may be carried out
by the debtor, by a person authorized by the
debtor, by law or by court. Article 1740(2), Civil
Code.
As a rule, the debtor is not required to perform the
obligations personally himself.
Performance must be personal where there is
express agreement to this effect and where the
creditor shows that this is essential to him.

To whom shall contract be performed
The person qualified to receive performance is only
the creditor, or somebody authorized by the creditor
or by the court or law. Article 1741, Civil Code.
Performance made to a person unqualified to
receive it is invalid unless the creditor confirms it
or such performance benefited him. Article
1743(1), Civil Code.
Exceptional situations:
The performance can become valid though it has been
made to a person unqualified to receive it if the
creditor confirmed it later.
Performance made to a person who appears to be the
creditor without doubt is valid. Article 1743(2), Civil
Code

Time of performance
parties are advised to determine time of
performance. So performance should be made
at agreed time (Art.1756 (1). However the law
still plays the gap filling role. As indicated
under Art. 1695(1) the law remedies the
deficiency of the agreement of the parties.
Therefore; where there is no contractually
agreed time, contract should be performed
when either the debtor Art.1756 (2) or the
creditor demand performance (Art.1756 (3).

Place of performane
If the parties determine the place of performance, their
agreement is respected. But where no place has been
agreed, a permissive provision of the law stipulates
that performance shall take place at the place where
the debtor had his normal residence at the moment of
concluding the contract. This general rule is excepted
regarding specific things. If no agreement is made to
the contrary, performance in respect of a definite thing
shall be made at the place where such thing was
situated at the time when the contract was concluded.

Non-Performance of a Contract
• A contract lawfully formed must be
performed by the parties. Failure to perform
according to the terms or conditions made in
the contract results non performance.Non
performance of contract is therefore breach
of contractual obligation.Where parties do
not perform obligations according to the
terms of the contract (time, place, size,
quantity or quality, etc.), it amounts to non
performance.

Conti…
As a rule, the giving of default notice is a
necessary prerequisite or precondition for seeking
remedies of non-performance. Article 1772, Civil
Code .
Default notice is demanding the debtor to
perform his obligations.
In the default notice the creditor sets a time limit
after which he will no longer accept performance
of the contract. The period fixed must be
reasonable. Article 1774(1), Civil Code

Conti..
The giving of default notice is not necessary in the following four
circumstances:
1. When the obligation is that of not to do type. Article 1775(a),
Civil Code.
2. if the debtor has declared in writing that he will not perform
his obligation(Article 1775(c), Civil Code).
3. If the contract states that the debtor would be in default up on
lapse of the time fixed in the contract with out the need to
give default notice. Article 1775(d), Civil Code
4. if the obligation the debtor assumed may only be performed
only within a fixed period of time but the debtor allowed it to
lapse. Article 1775(b), Civil Code

Remedies for Non-performance
1. Forced Performance:
• Two conditions must be satisfied before forced performance is
ordered:
i. the creditor must have special interest in the forced performance of
the obligations. Article 1776, Civil Code
ii. the forced performance must not affect the personal liberty of the
debtor.
2. Cancellation of the Contract:
Cancellation differs from invalidation both in its causes and effects.
A contract is invalidated when it is not lawfully formed. However, a
contract is cancelled not because it was not lawfully formed but due
to failure on the part of one of the party to carry out his obligation.

Conti…
Cancellation can be done either by the court or
unilaterally(by one party
Unilateral cancellation is possible if:
i. If there is cancellation clause in the contract
ii. the period of grace, the reasonable time and the
fixed -time for the performance of the
obligation lapses. Article 1787, Civil Code
iii. the debtor performance becomes impossible.
Iv. the other party informed him in writing that he
is not going to perform his obligations. Article
1789, Civil Code.

3. Damages or compensation:
The plaintiff will be awarded compensation for
damage only where he proves:
• he suffered damage
• the damage was caused by the defendant’s
non-performance of a contractual obligation.
The defendant, on the other hand may avoid
liability to pay damage only where he
establishes:
• the precise cause of his non-performance
• that the cause was a force majeure.

CHAPTER FOUR:- LAW OF AGENCY
• An agency relationship exists when one party,
called the agent, agrees to represent or act for
another party, called the principal. The principal
has the right to control the agent’s conduct in
matters entrusted to the agent. An agency may be
engaged to accomplish a single task or to carry out
several tasks.
• Agency is the fiduciary relation that exists between
two persons so that one shall act on the behalf and
subject to the control of the other.

Sources of Agency
The sources of agency under Ethiopian civil
law are two: the law and contract. Even
though the origin may be different, it is
ultimately sanctioned by the rules of law and
produces effect at law. In the majority of
cases, agency undertakings originate from
contracts

Agency by Operation of the Law
• The law intervenes, in the absence of formal
agreement between parties, One instance where
agency arising from the law operates is
representation of persons with legal incapacity.,
incapable persons such as minors, judicially
interdicted persons and legally interdicted persons
cannot perform juridical acts by themselves. An
agency also arises by law in cohabitation, i.e. it may
occur in family relationships, as between husband
and wife. Agency by operation of law may also occur
in emergency situations.

Contracts
• the vast majority of agency relationships
have their creation in contracts, i.e.
agreements between the agent and the
principal. The preliminary relationship is
contractual in nature, and the parties to
such contract can define the scope of the
authority of the agent and are free to
determine the details of their engagement.

Types of Authority
• The two ways of agency authorization are general and special
agency.
• In General agency,the law states that agency expressed in
general terms only confers upon the agent authority to
perform acts of management. acts of management as
comprising the collection of debts, the discharge of debts,
investment of income, leases for terms not exceeding three
years, and any other acts done for the preservation or
maintenance of property.
• Special agency confers on the agent authority only to conduct
the affairs specified by the contract of agency, and of course
their natural consequences attached to the specifically
enumerated acts by usage or custom

Effects of Agency
• As a juristic act involving multiple
relationships, agency undertakings produce
various distinct legal effects.The effect
regarding liability relationships among the
various parties involved in agency vary
depending on the sorts of authorization.It is
also equally breathtaking to consider the
right-duty correlation between the principal
and the agent.

Duties of the Parties to the contract of
Agency
There are respective rights and duties as between these
parties. Rights and duties are correlates, and there cannot exist
a right without a corresponding duty. Thus, rights of the
principal carry duties of the agent and rights of the agent carry
duties of the principal..
• Duties of the Agent
a) Duty of notification:.
b) Duty of Loyalty: -
c) Duty of obedience and Diligence
d) Duty of Accounting
e) Duty of Non-delegation

Duties of the Principal
a) Remuneration
b) Duty to Advance Money
c) Duty of reimbursement
d) Duty of Indemnification and Compensation:
e) Agent’s Lien right

Termination of Agency Relationship
• Agency may terminate either by operation of the law or the
actions of the parties.
Termination by Law
• Where there is no agreement to the contrary, the death or
declaration of absence or incapacity or bankruptcy of either
the agent or the principal will result in the extinguishment of
the legal bond.
Termination by the Parties
• There is little doubt that the agent and the principal can, by
mutually agreeing through contractual faculty, terminate their
agency relationships.They are free to bilaterally agree to part
company. This is an extension of their freedom of contract.

Chapter 5: Law of Sales
Law of sales is a branch of business law that regulates the
relationship between the buyer and seller of goods.
Definition:- 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, a buyer, in
consideration of a price expressed in money which the buyer
undertakes to pay him. Article 2266, Civil Code
 Price or consideration is another requirement of contracts
of sale. The price must be stated in money.
 The requirement of consideration or price distinguishes
contract of sale from barter because there is no price in
money. It also distinguishes contract of sale from
donation, as there is no consideration in the latter.

As a contract, sale must fulfill the permanent
requirements of a valid contract: capacity, consent
and object .
• There must be an offer and acceptance for the formation of
sales contract.
• The consent of the parties, which is expressed through offer
and acceptance, should also be free from defect.
• Mistake, fraud, duress, unconscionable nature of the contract
undue influence renders contract of sale invalid.
• The obligations of both the buyer and the seller must be
defined, lawful and possible.
• If the parties to the contract of sale fail to comply with these
requirements the contract would be invalid

The Object of Contract of Sales
The object of contract of sale includes:
corporeal chattels,
movables,
intrinsic parts or elements of immovables,
which can be separated and transferred as
corporeal movable. Article 226(1) and Article
2268(1) of the Civil Code.
Corporeal chattel(Movables) are things which
have material existence and can move
themselves or be moved by man without losing
their individual character.

Object….
• Movables Things- also include:
Things which are part of the immovable that
can be separated therefore are considered as
movables, and are the intrinsic elements of an
immovable such as trees, crops on the land,
and materials of building under demolition or
products of quarry.
Claim and other incorporeal rights embodied
in securities to bearer and natural forces of an
economic value such as electricity.

Object….
the law of sales does not apply to the following:
• Money – Money cannot be sold or brought but is
exchanged.
• Chose in action- these are intangible things such as
credit accounts and cannot be the subject matter of
sales since they are assigned or negotiated rather
than sold. They are governed by contracts in general.
• Immovable – Immovable things such as land and
buildings are not the subject matter of sales contract.

Fundamental characteristics of sales
transaction
• It transfers ownership: - Ownership in economic and legal terms
represents the fullest right a person would have over a property.
• 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.
• It is a commutative act: - The contract of sale is bilateral – the
obligation it entails is divided between the parties thereto.
• Trading parties and mercantile thing: the thing that is subject
matter of sale must be that within commerce. This manifests the
prohibition of slavery or the sale of one’s own organs.
• It involves the fixing of a price: - A characteristic of the contract of
sale is the price

Effects of sales contract
• Performance and Obligations of Parties to Sale Contract
• The normal effect of every contract is performance. Sale contract
is no exception on this regard. Performance is realized through the
imposition of certain obligations on both the seller and the buyer.
The parties to the contract of sale have their own respective
obligations to discharge.
Obligations of the Seller
• The most noticeable obligations of the seller in a typical sale
transaction are delivery, transferring ownership, providing
warranties, and other incidental duties.
1. Obligation to Deliver the Thing
• Delivery consists in the factual handing over (the conveying) of the
thing to the future owner. The delivery that transfers possession
over the thing can be made in three ways. i.e. actual delivery of
the thing itself , constructive possession, and handing over of the
documents representing the thing.

2. Obligation to Transfer Ownership:- It is a rule of legal
significance that the seller shall take all the necessary steps for
transferring to the buyer unassailable rights over the thing (Art
2287, Civil Code).
• The seller is obliged to warrant the buyer any such
dispossession which he might suffer in consequence of third
parties exercising a right they enjoyed at the time of the
contract.
3. Obligation to give Warranty Against Defects and Non-
conformity
• A sale contract carries with it a warranty both against defects
and non-conformity to the contract. the seller shall
guarantee to the buyer that the thing sold conforms to the
contract and is not affected by defects

Obligations of the Buyer
• The obligations of the buyer are paying the price (the main
obligation), taking delivery of the thing, and other obligation
contractually imposed upon him.
1. Obligation to Pay the Price
• The obligation is usually discharged quite easily by a cash
payment. But it may be also made by cheques, bank accounts,
special banking facilities, credit card payments or even payment in
foreign currencies are modes of paying the price.
• The place of payment is in principle that fixed in the contract.
Where the contract is silent payment is made at the address of the
seller business address. In the absence of a contractual provision,
the principle is sale for cash on delivery. Payment is simultaneous
with delivery, but the buyer should be granted the opportunity to
examine the thing for defects or non-conformities so as to avoid a
dispute where payment has taken place and the seller refuses to
repair defects.

2. Duty to Take Delivery
• Where the delivery consists in that of a thing
conforming to terms of the contract, the buyer should
take it. The buyer has a duty to cooperate in the
delivery process and he may not obstruct the sale by
blocking the delivery. The obligation to take delivery
includes active performance of procedures necessary
or even customary for carrying out the delivery. He
has to cooperate with the seller, for example, in
indicating the color, size or other important attributes
of the thing.

Common Obligations of the Parties
• The priority is given, like always, to a contractual
term that is fixed by the parties.
• If there is no agreement, the law imposes certain
obligations on both parties based on
circumstances. By common obligations of the
parties, Thus, the seller and the buyer have
obligations:-
• To transfer of risk, expenses, and preservation of
the thing may be borne by either of the parties
depending on differences in time, nature and other
attending circumstances.

CHAPTER SIX:- Law Of Banking , Insurance
and Negotiable Instruments
• Banking
• The term bank refers to an institution that deals in
money and its substitutes and provides other
financial services. Banks accept deposits, make
loans, and derive a profit from the difference in
the interest rates paid and charged respectively.
Some banks also have the power to create money.
• A bank must always have cash balances on hand in
order to pay its depositors upon demand or when
the amounts credited to them become due.

Economic Significance of Banking
• Firstly, banks are intermediaries between depositors and
borrowers thereby promoting savings.
• Secondly, they encourage industrial progress and business
expansion through funds channeled to investors.
• Thirdly, banks exercise considerable influence on the level of
economic activity through their ability to create or manufacture
money in the economy and
• fourthly, the various utility functions performed by banks like
accepting and discounting bill of exchange and collection of
dividends and interests on behalf of customers are of great
economic significance for the economy.

Types of Banks
1. Central Banks
• It refers to a bank that is entrusted with the power of regulating the
size of a nation’s money supply, the availability and cost of credit, and
the foreign-exchange value of its currency.
• Under Ethiopian context, these powers are entrusted to The National
Bank of Ethiopia (NBE). It is established by order No 30/1963 and
reconstituted by the Monetary and Banking Proclamation No
83/1994 as an autonomous organ, which is engaged in the provision
of regular banking services to the government and other banks and
insurance companies’. T
• he main purpose of the bank is to foster monetary stability financial
system and such other credit and exchange conditions as are
conducive to the balanced growth of the economy of Ethiopia.

2. Commercial Banks
• Commercial banks are banks with the power to make
loans that, at least in part, eventually become new
demand deposits. When a borrower receives a loan,
his checking account is credited with the amount of
the loan; total demand deposits are thus increased
until the loan is repaid..
3. Saving Banks
A savings bank is a financial institution that gathers
savings and that pay interest or dividends to savers.
Except for the commercial banks, these institutions do
not accept demand deposits.

4. Investment Banks
• Investment bank is a firm that originates, underwrites, and
distributes new security issues of corporations and
government agencies. The major responsibility for setting the
public offering price rests on the investment bank because it
is in close contact with the market, is familiar with current
interest rates and yields, and is best able to judge the
probable demand for the issue in question.
5. Development Banks
• It refers to a national or regional financial institution designed
to provide medium- and long-term capital for productive
investment, often accompanied by technical assistance, in
less-developed areas.

Major Banking Transactions
1. Deposit of Funds
2. Transfer
3. Deposit of Securities
4. Hiring of Safes
5. Discount
6. Lending
7. Documentary Credit

Negotiable Instruments
• Definition of Negotiable Instruments
• The word negotiable means ‘transferable by delivery’
and the word ‘instruments’ means a written document
by which a right is created in favor of a person. Thus, the
term negotiable instrument literally refers to a
document containing rights that can be transferred by
delivery.
• Similarly, Article 715(1) of Ethiopian Commercial Code of
1960 defines the term negotiable instruments as any
document incorporating a right to an entitlement in
such a manner that it is not possible to enforce or
transfer the right separately from the instrument.

Nature & Purpose of Negotiable Instruments
• The main purpose of negotiable instruments is facilitation
of commercial transactions. Commercial instruments are
substitutes for money and are used as means of
performance of money obligations.
• Dealing with them reduces the risk of loss or theft and the
ease with which they can be transferred creates
convenience which will in turn facilitate business.
• Transferable securities have the purpose of raising capital
in the form of contributions made by purchase of shares
and bonds, which is used for starting new businesses or
expansion of existing businesses thereby increasing the
production of goods and services in the country.

Commercial Instruments
Definition
• Commercial instruments are negotiable instruments
incorporating rights for payment of a specified amount of
money.
• They are issued and negotiated on the basis and with the
purpose of performing an obligation that can be performed by
payment of a certain amount of money. Hence, they are used as
a substitute for money
• Article 732(1) of the Commercial Code of Ethiopia defines
commercial instruments as negotiable instruments setting out
on entitlement consisting in the payment of a sum of money.
Sub-Article (2) of the same Article provides that bills of
exchange, promissory notes, checks, travelers’ checks and
warehouse goods deposit certificates are the types of
commercial instruments recognized under the Ethiopian law.

Types of Commercial Instruments
• Bills of Exchange
• Bills of exchange are negotiable instruments incorporating an
unconditional order, addressed by one person to another, signed by the
person giving it, requiring the person to whom it is addressed to pay on
demand or at a fixed or determinable future time a certain sum in
money to or to the order of a specified person.
• a bill of exchange must contain;
• The term “bill of exchange”
• An unconditional order to pay a certain sum in money
• The name of the person who is to pay ( the drawee)
• The time of payment
• The place of payment
• The name of the person to whom or to whose order payment is made or
an indication that it shall be payable to bearer
• The date when and the place where the bill is issued.
• The signature of the person who issues the bill (drawer)

Promissory Notes
• A promissory note is defined as a document incorporating an
unconditional promise in writing made by one person to another
signed by the maker, engaging to pay, on demand or at a fixed or
determinable future time, a sum certain in money, to or to the order
of a specified person or to bearer.
• Thus, a promissory note must contain;
• The term “promissory note”
• An unconditional promise to pay a sum certain in money
• The time of payment
• The place of payment
• The name of the person to whom or to whose order payment is to
be made or a statement that the note is payable to bearer
• The date when and the place where the note is issued
• The signature of the person who issues the instrument
• These requirements should be observed for promissory note to be
negotiable instrument.

Checks
• A check is the most widely used form of commercial instrument. It is
bill of exchange drawn on a bank and payable on demand.
• Therefore, since check is defined by reference to a bill of exchange,
most provision governing bills of exchange are applicable to check.
The check is an unconditional order in writing, addressed by one
person, the drawer, to a banker, signed by the drawer, requiring the
bank to pay, on demand, a sum certain in money to or to the order of
specified person or to bearer.
• It is also important to note that a drawer of a bill of exchange and a
check or the maker of a promissory note may antedate or postdate it,
provided that he has not committed a fraud. In other words, unless
the drawer or maker intended to jeopardize the interest of the payee
by causing the rights contained in the instrument to lapse, the mere
fact of antedating or post dating an instrument does not make it
invalid.

Certificates of Deposit
• A certificate of deposit is a form of commercial
instrument issued by a bank. It is an instrument
containing an acknowledgement by a bank that it has
received a sum of money on deposit and a promise to
repay the sum of money.
• When a person deposits money in a bank he will be
given the document showing the deposit of money
which could be withdrawn by the depositor or the
holder of the certificate.
• Under our law, a certificate of deposit is not considered
as a commercial instrument. It is not even mentioned in
our law but in common law countries, it is treated as a
commercial instrument because it serves as means of
payment of money similar to other type of commercial
papers.

Insurance
• Insurance may be defined in various ways.
• Firstly, from the point view of an individual it may be
defined as a risk transfer mechanism or an economic
device whereby a person, called the insured/assured
transfers a risk of a possible financial loss resulting from
unforeseeable events affecting property, life or body to
a person called the insurer for consideration.
• Secondly, from the point of view of the insurer,
insurance may be defined as a mechanism through
which a risk is distributed among the group of persons
who are exposed to the same type of risk, i.e., persons
who bear the risk of suffering a financial loss as a result
of events affecting property, life or body.

Definition of contract of insurance
• A contract of insurance is a contract whereby one party
undertakes, in return for a consideration called a
premium, to pay to the other party called insured a
sum of money on the happening of a certain event
(death or attainment of a certain age, or injury) or to
indemnify the other party against a financial loss
arising from the loss or damage to property or from
incurring civil liability.
• The party which promises to pay a certain amount of
money to, or to indemnify, the other party is called the
insurer. The document containing the terms and
conditions of the contract of insurance is called the
insurance policy, and the insured is therefore, also
referred to as a policyholder.
• A contract of insurance must be made in writing what
is called an insurance policy

.
• Art 654 of the Commercial Code of Ethiopia defines
insurance as follows: Insurance (policy) is a contract
whereby a person, called the insurer, undertakes,
against payment of one or more premiums, to pay to a
person, called the beneficiary, a sum of money where a
specified risk materializes.
• Insurance is a social security scheme that developed
because of the existence of risks.
• Risks are evident especially in the business world
where persons may be exposed to huge losses as a
result of the materialization of the risk.
• Such a phenomenon may discourage people from
venturing on sectors that may entail risk or the
business sector might have been generally
endangered.

Conti…
• Insurance policy had succeeded in responding to
the abovementioned problem.
• Insurance makes a person work without fear and
thus increase production and productivity.
• Individuals perform more in a risk free or risk
controlled environment. Insurance helps to budget
money for unknown loss.
• If a person is insured, he pays money to the
insurance company at a continuous interval. The
periodic payment, called premium, can be taken as
a budgeting in advance for an uncertain risk.

Insurable Interest
• Any party purchasing insurance must have a
“sufficient interest” in the insured item to obtain a
valid policy. Insurance laws determine sufficiency of
items for insurance coverage. A person is said to
have insurable interest where he has a vested
interest in the subject matter of insurance to whom
the advantage may arise or prejudice may happen.
There must be an economic link to the claim of
insurance.
• The insured should be benefited from the existence
of a thing or an interest insured or should be
prejudiced by its destruction upon materialization
of the risk.

Basic rights and obligations of the parties
• Both the insurer and the insured do bear some
duties to one another.
• The insurer guarantees the insured against the risks
specified in the policy, and must pay the agreed
amount within the time specified in the policy or
when the risk insured against occurs at the time
specified in the policy.
• But the insurer is automatically exempted from the
duty if the losses or damages covered by the policy
are caused by the negligent or intentional fault of
the insured himself.

Conti..
• The main duties of the insured under an
insurance policy are the payment of a fixed
premium and the disclosure of material
facts. Thus, the insured pays a fixed sum,
called premium, which is usually paid on a
time interval. The insured is equally obliged
to disclose exactly all the material facts
within his knowledge. By material facts, we
mean that the insurer appreciates the risks
based on them and consents to enter into
the policy based on that.

Significance of Insurance
• The following are some of the major benefits.
• Indemnification for Losses
Payment of compensation by the insurer for losses permits individuals and their
families to be restored to their original financial position after a loss has occurred.
• Reduction of Worry and Fear
For instance, if family heads have life insurance for adequate amount to cover the
future needs of their families, they are less likely to worry about the financial security
of their dependents in the event of their premature death.
• Means of Loss Control
Although the main function of insurance is not to reduce loss but merely to
spread/distribute losses among members of the insured group, insurers are
nevertheless vitally interested in keeping losses at a minimum.
• Enhancing Credit
it makes the borrower/debtor a better credit risk because it guarantees the value of
the borrower’s collateral/mortgage or pledge/, and gives the creditor /lender greater
assurance that the loan will be repaid.

Basic Principles of Insurance
1. Principle of Utmost Good Faith
• It is the inherent duty of both parties to a contract of insurance to
make full and fair disclosure of all material facts relating to the
subject matter of the proposed insurance.
2. Principle of Indemnity
• The purpose of indemnity is to place the insured, after a loss, in
the same position he occupied immediately before the
event.(except those of life and personal accident insurances )
3. Proximate Cause
• the insurer is liable only for those losses which have been
proximately caused by the peril insured against. immediate, or the
last cause has to be looked into, and if it is the peril insured
against, the insured can recover.
4. Insurable Interest
• Insurable interest means some proprietary or pecuniary interest.
The object of insurance is to protect the pecuniary interest of the
insured in the subject matter of the insurance and not the material
property as such

Conti..
5. Doctrine of Subrogation
• The doctrine of subrogation is a corollary to the principle of indemnity and as such,
it applies only to property insurances. According to the principle of indemnity, the
insured can recover only the actual amount of loss caused by the peril insured
against and is not allowed to benefit more than the loss he suffered.
6. Mitigation of Loss
• When the event insured against occurs, for example, in the case of a fire insurance
policy when the fire occurs, it is the duty of the policyholder to take steps to
mitigate or minimize the loss as if he were uninsured and must do his best for
safeguarding the remaining property.
7. Doctrine of Contribution
• The doctrine of contribution states that ‘in case of double insurance all insurers
must share the burden of payment in proportion to the amount assured by each.
Thus, the essential conditions required for the application of the doctrine of
contribution are:
• 1. There must be double insurance
• 2.There must be either over-insurance or only partial loss
8. Reinsurance
• An insurer assuming larger risk from the direct insurance business may arrange
with another insurer to off load the excess of the undertaken risk over his retention
capacity. Such arrangement between two insurers is termed as ‘reinsurance.’

CHAPTER SEVEN: LAW OF TRADERS AND
BUSINESS ORGANIZATION
• Traders
• A business may be carried out by an individual operating
as a sole proprietorship, by two or more persons in a
partnership agreement or by company form.
• A trader is defined as any person who carries on any of
those or similar activities specified under Article 5 of the
Commercial Code professionally and for gain.
• So, a sole trade is a business carried on by an individual
acting in an independent way and the person who
conducts such business is sole proprietor.

What is business?
• Business is defined under the Article 124 of the
Commercial Code as “an incorporeal movable
consisting of all movable property brought together
and organised for the purpose of carrying out any of
the commercial activities specified in Art.5 of this
Code.”
• In a nutshell, the term “business” constitutes both
tangible and intangible assets, including tools,
equipments, raw materials, goods in stock, good
will, trade name, trade mark, patent, copy right,
and the right to lease of the premises. But,
immovable properties cannot form part of the
business

Business Organizations
• In a free market economy, business organizations are
a familiar part of every day life.
• Business organizations run the supermarkets from
which we buy our foods and attires; they supply the
water, gas, and petroleum products we depend on;
they publish the books and newspapers we read.
• We deal with them so often as consumers of their
products and services that the image which the phrase
“business organizations” brings to mind is usually of
entity concerned with marketing and collecting
payments for products and services which they have
offered. It is necessary to go behind this image to get
to the entities which are the subject of the Law of
Business Organizations.

Conti..
• Most, if not all, of the business organizations are legal
entities which have firm-names and head office; they can
acquire rights and incur liabilities, and can sue and be sued
under their firm names. Business organizations, from a legal
viewpoint, are undertakings with more than one member,
having assets distinct from the private assets of the members
and a formal system of management, which may or may not
include members of the organization.
Features of business organizations
• The first feature, initial plurality of membership,
distinguishes the business organization from the business
owned by one man

Conti…
• The second feature, the possession of distinct assets, is
essential for two purposes: to identify the assets to which
creditors of the organization can resort to satisfy their claims
(though in the case of some organizations, such as the
partnerships they can also compel the member to make good
any deficiency), and to make clear what assets the managers
of the organization may use to carry on business for the
member’s benefit. The assets of an organization are brought in
directly by its members by way of contribution. Contributions
may be made in cash, kind, and service in all forms of
business organizations other than the share company or
private limited company.
• The third essential feature, a system of management, varies
greatly. In a simple form of business organization the
members are entitled to participate in the management, and
each member has an equal voice in management decisions.

Conti…
• A business organization is an association
established through a memorandum of association
by persons who bring together contributions for the
purpose of undertaking an economic activity in
cooperation and of participating in the profits
made(art 172/1 of the new commercial code)
• Exception: A joint venture is formed by an
agreement concluded among members that is not
disclosed to third parties.
• A memorandum of association is an instrument
drawn up to establish a business organization.

The Types of B.Os
There are seven types of business organization in our
legal system. These are:
1. General Partnership(GP),
2. Limited Partnership(LP)
3. Limited Liability Partnership(LLP),
4. Joint Venture(JV),
5. Share Company(SC) and
6. Private Limited Company(PLC).
7. One person private Limited Company(one man
company)

Formation of Business Organizations
• A business organization has a completely different
personality from the individual members
• It shall be formed by memorandum of association
(except to joint venture)
• Except JV, all the others are considered legal
persons.
• Such organizations are granted legal personality
where they meet the requirement of registration in
the commercial register.(Art 175 of com .code)
 The formation of a business organization except
that of a JV shall be of no effect unless it is made in
writing. i. e memorandum of association.

1. General partnership
• It consists of partners who are each jointly, severally
liable with the partnership itself for the obligation of
the partnership
• A partner in a commercial partnership is considered as
a trader. The general partnership needs to have a firm
name consisting of the names of at least two of its
partners and followed by the words 'General
Partnership'. However, the partnership agreement can
provide that the approval of the majority of the
partners shall be sufficient.
• Each partner shall make a contribution in the form of
money, movable or immovable property, skill,
trademark, goodwill, patent, copyright, lease right,
usufruct or other contributions

2. Limited Partnership
Limited partnership differs from general partnership
in that it comprises two types of partners i.e.
1. general partners who are fully, jointly and severally
liable and
2. limited partners who are only liable to the extent of
their contributions only.
 Unlike general partnership, some members can have
limited liability. As a result, the limited partners are
not liable for the debts of the partnership beyond
the funds they contributed.
 The limited partnership needs to have a name
consisting of the general partners and followed by
the words 'Limited Partnership'.
 The contribution is similar with that of GP

3. limited liability partnership
• A limited liability partnership is a business organization
formed by two or more persons to render professional
service and services complementary thereto in which
the liability of partners is limited to the amount of their
contributions.
• Professional service shall, in the context of this
partnership, mean a service provided based on a
professional license granted by an appropriate organ;
• Complementary service shall mean a related service
that falls under one or more professions and is
necessary to provide the professional service

4. Joint Venture
A joint venture is a business organization established by
an agreement among two or more persons.
It has no legal personality and its existence is unknown
to third parties.
Registration formalities required of other business
organizations do not apply to a joint venture
CHARACTERISTICS OF JOINT VENTURES
Is the simplest form of business organization
It is exempted from registration.
It is a secret business organization.
It is not made known to third parties.
 Its agreement need not be in writing
A joint venture does not have legal personality

5. Share Company(S.C)
• Share Company is a company whose capital is fixed in
advance and divided into shares and whose liabilities
are met only by the assets of the company.
• The establishment of Share Company requires at least
five persons and there is no maximum member
limitation.
• the company shall not have less than birr 50,000
capital. The name of the share company shall include
the words “Share Company".
• The main tasks of the founders include to prepare
various documents and to submit them to the relevant
government authorities.

Merits of Company
A. Financial Resource: - It helps to mobilize huge funds,
required by big business because large number of members
can subscribe its capital in small & affordable quantities
B. Limited liability:- Shareholders are limited liability
C. Scope of growth:- company can grow and expand at a
rapid pace and faster due to huge resource.
D. Professional management:-Competent & professional
management is vital for targeted rates of growth
E. Stability of the company:- continuity and stability of
business are equally important for the success of any
business.
F. Positive social benefits:- a company is beneficial not only
to its members, creditors but also to the public at large.

6. Private Limited Company(PLC)
• A private limited company is a business organization
whose capital is fully paid in advance, divided into
shares and whose members are not liable for the debts of
the company provided that they have paid up their
contributions. Shares of the company shall not be open for
subscription by the public. The maximum number is fifty
while the minimum is two. The company shall not issue
transferable securities.
• It needs a minimum capital of Birr 15,000 which must be
paid up on registration.
• it is a hybrid of Share Company and Partnership.
• A private limited company cannot engage in banking and
insurance activities

7. One Member Private Limited Company
• Formation
• The OPC is formed just by one person making a
unilateral declaration before the authority entrusted
with the authentication of documents (Art 536/1 of
com.code).
• It enjoys a legal personality autonomous or separate
from the person forming it (Art 534). The minimum
capital shall be 15000 ETB like PLC. It is important to
note here the prohibition that one person cannot
establish more than on OPC although it is not clear why
this is the case (Art 539).
• It needs also a nominee who accepted the nomination
before the authority entrusted with the authentication
of documents.

Dissolution of BOs
 Causes of dissolution of a
company./partnership/, common to all
kinds of B.O.
Dissolution by:-
operation of law, statutes company/
partnership
agreement of members to dissolve
judicial decision for just cause

CHAPTER EIGHT: LABOUR LAW
• Labour law is essential in order to keep industrial
peace to maintain harmony and cooperation for the
over-all development of the country, to guarantee
workers and employers to form their associations,
and to strengthen and define the power and
function of regulatory organs in labour related
matters.
• Therefore, duration of contract of employment,
rights and duties of the employer and the
employee, grounds for suspension and termination
of contract of employment and the remedies
available in case of unlawful termination of contract
of employment will be covered under this chapter.

Definition and Concept of Labour Law
• Labour law is a law that governs employment
relations in which the work is rendered by a
party called the employee under the authority
of another party called the employer in return
of wage(Art 4 of the Labour Law
Proc.No.1156/2019)
• Contract of employment as any other of
contract should fulfil all the legal
requirements as provided under Art 1678 of
the Civil Code to be a valid contract that could
be enforced in a court of law.

Form of contract of employment
• As stated under Art 5 of the Labour Law
Proclamation, parties can conclude contract of
employment in any form unless a special form is
prescribed by the law.
• The special requirements that contract of
employment to be made in writing includes
contracts for the existence of probation period,
modification of contract of employment, and the
termination of contract of employment by
agreement are some of the examples to be
mentioned.

Duration of Contract of Employment and
Probation Period
• Contract of employment may be made for definite
period or for indefinite period. But still, parties have
no power to determine the duration of contract of
employment. In other words, they can agree on the
duration of contract of employment as long as they are
not in contradiction with the law. The law has provided
the situations in which a contract may be made for a
definite or indefinite period.
• Art. 9 and 10 of the labour proclamation provides that
a worker may be employed for indefinite period unless
and otherwise the worker falls under Art.10 of the
labour law proclamation despite their contract.

.
•
A worker is presumed to be employed for definite period in
case of:
• Accordingly, a worker is presumed to be employed for
definite period in case of:
• The performance of specified piece of work
• To replace a worker who is temporarily absent from work due
to leave or sickness or other causes.
• Abnormal pressure of work
• Urgent work to prevent damage or disaster to life or property
• Seasonal work
• Occasional work
• A temporary replacement of a permanent worker who has
suddenly and permanently vacated from a post.
• Temporary placement of a worker or the time of structural
adjustment of the organization.

probation period
• A worker may be employed for a probation period
in order to test his competency for the position that
he is to be assigned. In such cases, the agreement
should be in writing and it should not exceed 60
consecutive days.
• When he is proved to be unfit for the job during in
the probation period, the employer may terminate
the contract of employment without notice and
without payment of compensation or severance
pay. In the same token, a worker can terminate his
contract of employment without notice during the
probation period for any reason

Duties of the Parties
Obligation of the Employer
• Irrespective of what are provided in the contract, the
employer has the following legally imposed obligations as
per Art. 12 of the labour law proclamation.
• To provide work, tools and materials necessary for the
performance of the work
• To pay the worker wagers and other remunerations
• To respect the human dignity of the worker
• To take safety and health measures
• To give certificate of experience up on request of the worker
free of charge
• To keep registered information about the situation of his
worker
• To observe the provision of the law, rules and directives

Obligation of the Worker
The worker has the following obligations;
• To perform his work specified in the contract in person
• To work as per the instruction of the employer as
provided in the contract and work rules.
• To handle all tools and materials of the employer with
due care
• To give proper aid when there are accident occurs to
life or property in a place of work
• To give information about any acts which endanger his
life or his work fellows and the undertaking
• Not to take employers property without permission
• Not to report for work in a state of intoxication

Suspension and Termination of Contract of
Employment
• Suspension:-Suspension is the temporary cessation of
rights and obligations of the parties arising out of a
contract of employment and this does not mean
termination. However, during the term of suspension,
the worker will not perform his work and the
employer will not make payment of wages.
• The following are valid grounds of suspension:
• Leave without pay by the agreement of the employer
• Leave for the purpose of holding office in a trade union
or other social service
• Detention for less than 30 days
• National call
• force majeure.
• Financial problem

Termination
• termination is the permanent cessation of rights
and obligations of the employer and employee that
arises from a contract of employment and from the
law. A contract of employment may be terminated
by:
• the employer
• the employee
• agreement
• law
• Collective agreement

Remedies in case of Termination
• Where the employer terminates the contract of
employment with the worker in contradiction with the
law regarding termination, it will be unlawful
termination.
• If the worker terminates his contract illegally, as said
above, he shall pay one month’s wage. Whereas, if an
employer is to terminate his contract without following
the rules and procedures as provided in the law, he
shall pay the worker severance pay, compensation and
other payments as enumerated in the law if the
worker is not willing for reinstatement or if the labour
dispute settlement tribunal decides for dismissal with
payment of compensation.
• He may also be obliged to make payment of severance
pay and other payments if provided by the law even if
the termination is legal

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