Business Law Module (1) ... Admasua... Old

By Admasu Alemayehu, Lecturer of Law, HU, 2007
Unit one
1. Introduction to law
Dear students! In this opening unit, we will introduce you with the basic concepts
and features of law. The unit will briefly bring in to picture the basic concept and
meaning of law, features & function of law and finally some usual modes of
classification of law.
The Meaning / concept of Law
Dear students! Can you tell us what law means? ` What comes to your mind when
you see the term law? Please think for some time and attempt to give the definition
of your own!
As we hope you all have attempted, defining the term Law is one of the
controversial points to the legal scholars. That means legal scholars vary in their
definition of what law means and hence you cannot see a universally recognized and
accepted definition of Law.
However, with all these variations and controversies, legal scholars have attempted
to give meaning to the law. It deserves to mention some of them.
For Aristotle, Law is a rule of conduct or behavior, while Plato takes law as form of
social control. John Austin, from the positive school of thought, describes law as the
command of the sovereign backed by sanction.
When we come to its dictionary meaning, Oxford English Dictionary defines law
as:-
A rule made by authority for the proper regulation of a community or
society or for correct conduct in life.
In blacks law Dictionary,
Law is a body of rules of action or conduct prescribed by controlling
authority and having binding legal force.
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Each of the above definition has its own truth and areas of emphasis in defining the
term law. Certain points can be noted from the above definitions:-
 Law is a generic term consisting of different rules and principles of some

supreme, but other subordinate; some substantive and others procedural, etc
 Law is a norm or standard of behavior of person(s). It prescribes either to do
or abstain from doing something.
 Law is a rule which emanates from determinate and competent public
authority. This gives it formal validity & binding force.
By way of summery and for the purpose of this material, the term law can be defined as
follows:-
Law is a set of normative rules and principles made by a competent organ of the state
and of binding nature /legal force/. Here you are required to analyze the basic elements
of the above definition!
Having the afore stated definition of law in mind, the term business law needs to be
clarified. The term business law may be defined as that branch of law which comprises
laws concerning trade, industry and commerce. Hence business law is nothing but a
collection or sets of different rules and principles governing the conducts and
relationships of persons (traders and business organizations) as affecting their economic
and commercial activities. It is generally understood to include laws relating to
persons, contracts, sales, agency, partnerships and companies, insurance, negotiable
instruments, insolvency, etc.
1.2. Features of Law
We have attempted to define law in the previous section. Some of the definitional
elements can also be taken as features of law. The following can be mentioned as some
of the characterizing features of law:-
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I. Law is obligatory - means it creates a duty to obey and hence can t be escaped
easily. To be governed by law or not is not left to the individual discretion
/choice/
II. Law is made by public authority This relates to the formality of enactment
that legal rule has a determinate source. This source should be a competent
public authority e.g. in our case House of Peoples Representatives
III. Law is followed by sanction - since legal rules have organized enforcement
machineries, coercive forces are used for its effective observance. This is taken
as one reason for effectiveness of legal rules as distinguished from other similar
rules.
IV. Law has a general application in the society or with in a given society or
group legal rule is not concerned about every and individual behaviors. Rather
it is fixed generally to apply for any future potential conducts. Ex. A law
addressing the office of president of Ethiopia.
V. Normativity Legal rules are nothing but setting or describing standards of
behavior of persons. It is an instrument regulating social behavior as to what to
do or not to do. Example a law prohibiting criminal acts, a law ordering to pay
tax, etc
1.3. Function of Law
In the modern organized and interactive community, Law is required to achieve various
objectives. The ultimate end of law will and should be to attain justice in its various
versions as social, economic, political, etc However, when we come to specific
purposes of the law, the following are some of the functional reasons for the existence
of law:-
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I. Maintaining peace, order and stability It is generally recognized that legal rules
serve to ensure peaceful, orderly and stable existence of the state and its inhabitants.
This ultimately guarantees the protection of citizen s core right- the right to life, the
right to liberty and the right to property.
II. Regulating social behavior legal rules serve as means of controlling social
behavior by for forbidding or commanding the doing of certain acts. Fear of penalties
will avoid or mitigate unwanted or unapproved behaviors of persons.
III. Means of dispute resolution In the face of multiple interests of persons, dispute is
inevitable. Such disputes are usually settled either judicial or extra judicially by
applying the law.
IV. Protecting citizens from excessive and abuse of government powers law can
serve as a check to the governmental power not to violate the right of its citizens. To
this end, constitutional and administrative law can be best examples. Constitutions in
most countries set out basic rights and freedoms of citizens and also put limitations on
government powers. Example, rule of law, due process of law, accountability, etc
V. Promoting developmental activities legal rules can serve as important mechanisms
for the growth and change of a nation state and its citizens. Conductive environments
and new technologies can be created and introduced through the enactment of laws.
Examples investment law, patent and transfer of technology law, tax law /VAT/, etc
Generally, legal rules have multitude of functions for the development of particular
state and its citizens as implementing various economic, social, political, cultural
objectives and policies in to practice. Ex. Dispute on contract and application of
contract law
1.4. Classification of Laws
Classification is dividing things in to certain groups or classes having some
common feature. But classification of laws may not be that much strict or of scientific
nature as it can not escape from problems of over lapping. However, for the sake of
simple understanding and easy accessibility, laws are classified into various categories:-
 Public law Vs. private law
 Substantive law Vs. procedural law
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 Criminal law Vs. civil law
 Domestic law vs. international law, etc.
We will briefly discuss the basis and importance of some of the above classifications.
I. Public law Vs. Private law The basis of classification is mainly the relationship
regulated or the subject matter governed. Public law, as its name indicates, principally
governs the relationship between public organs /government/ and its subjects. It defines
the respective rights and powers of citizens and governments and also regulates their
possible relationships. For example, constitutional law is one which establishes state
organs and defines their powers and functions. It also guarantees fundamental rights
and freedoms of peoples. Other examples of public laws are administrative law,
criminal law, financial /tax/ law, etc.
Private law includes the whole branch of civil laws which governs the relations between
private persons /individuals/. It is all about the regulation of private conducts and
resolution of private affairs. This category includes such laws as law of persons, family
law, succession law, property law, contract law, business law, etc.
II. Substantive law Vs. Procedural law The basis of classification is mainly on
the content /substance/ of the law. Substantive law sets out the rights and duties
governing people as they act in society. It defines what rights, privileges and liabilities
a person and government itself has. This category forms a greater portion of both
public and private laws as constitutional law, criminal law, contract law, family law,
extra contractual liability law, etc
Procedural law, on the other hand, establishes the rules under which substantive rules of
law are enforced. It is the means by which rights, privileges and duties are determined
and enforced as how court cases are instituted, trial conducted, how judgment rendered
and executed, etc.
E.g. Civil procedure, criminal procedure, administrative etc.
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III. Criminal law Vs. Civil law This is essentially on the basis of the relations and
affairs regulated. Criminal law is one of public law domain dealing with the breaches of
legal duty to a society at large or else deals with crimes committed against an individual
person, the public or the state. It sets out punishable offences and its corresponding
penalties and measures.
Civil law, on the other hand, is the ordinary private law concerned with the rights
and duties of individual person /s/ towards one another, Here remedies are sought in
private capacity even when the government is party to it.
Please read more and distinguish the other specific differences between criminal
law and civil law!
Unit Two
2. Law of persons
Introduction
In this unit you will deal with the subjects of law, the organs that the law spells out,
rights and duties. These are persons under the law only persons can enjoy rights the law
spells out and subject to duties the law imposes. It is thus imperative to know about
persons in order to talk about law and legal obligation, as those are nothing without its
subjects. In this unit you will deal with the concept and meaning of legal personality
types of persons attributes of legal personality, the origin of physical personality,
capacity, and of incapacity and in the end of personality.
2.1. Concept of legal personality

The concept of legal personality is one of the most fundamental one in law as it
provides for the definition of those "beings" or "things" which will be bound by the law.
The latter thus regulates the conduct of 'beings' and 'things' i.e. Persons. The question
here is what the meaning of the term person is?
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In ordinary parlance the term person(s) refers to individual human being(s). All human
beings without any distinction are physical /natural persons. So in the legal context the
meaning of the term person is not restricted to refer only to natural persons. The law
also personifies entities like organizations and associations and gives the status of
person after all formation formalities are fulfilled
2.1.1. Physical /Natural persons
Physical persons exclusively include human beings. All human beings are considered as
persons under the law by the mere fact they are born human. That is why they are
termed as natural persons. There is no other formality than birth to acquire the status
under the law. The very article of the civil code establishes this basic principle as;
"human person is the subject of rights from its birth to death". Human beings are thus
recognized as persons under the law to have rights from birth.
The law however does not specify only rights, but also corollary duties. When it
confers rights, it also imposes the duty to respect the right of others. Personality is
about the capacity to have or to enjoy rights & duties, which will be enforceable by the
legal machinery.
2.1.2. Juridical Persons
These types of persons are entities such as organizations, association's, partnerships to

which personality is conferred by the operation of the law. They are termed juridicial or
artificial persons, as their personality is not natural, unlike human beings, but mere
creation of the law up on fulfillment of certain formality requirements such as
registration and publication.
Juridical persons are thus capable of holding rights and duties consistent with their
nature. Some examples of artificial persons are:
 The state & its administrative organs (ministries, agencies, etc)
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 Public enterprises (e.g. Tele, Ethiopian Airlines,
 Religious institutions
 Business organizations, civil or humanitarian associations (e.g. NGOs,
professional associations, companies etc,)
2.1.3. Attributes of legal personality
Attributes of personality are qualities or features of personality. And most importantly it

refers to what a person may do/ exercise as a result of having legal existence
(personality). These are those that cannot be exercised or done for example by animals,
entities or things that have no legal existence. The attributes of personality are discussed
in brief as follow.
a) Capacity to sue & be sued legal persons have the capacity to bring legal action
demanding remedy or can be subjected to legal action demanding remedy
against them. This is same for both human persons &artificial persons.
b) Capacity to own property Both natural and artificial persons can own property
in their own name and administer it, which cannot be done by non-personified
entities. Natural persons can own property of various sorts like house, vehicles,
ships, etc .Like wise artificial persons can own items of the above kind in their
own name
c) Can perform act of legal nature
Persons can enter in to juridical acts that have legal effects like entering in to
contracts, making donations, etc.
d) Capacity to acquire rights & duties
It is generally said that personality is about capacity to hold or enjoy rights &
duties. The law confers rights and imposes duties only to and on the subjects of
the law, i.e. persons. Non-persons have no rights & duties. Things or entities
that doesn't acquire personality have no capacity to hold rights & duties even if
in certain cases the law gives protection to them
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Therefore only physical and artificial persons can acquire rights& duties
consistent with their nature
2.1.4. Personality of physical persons
In the preceding sections we have seen that the law recognizes physical and juridical
persons as legal persons. The concern of this unit is on the former types of persons
while the latter types of persons are dealt with under different laws like the commercial
code and other titles of civil code. Thus under this section we will deal with origin and
effects of human personality.
2.1.4.1. Origin of personality
Basically personality begins with birth i.e. the beginning of physical existence and of
legal existence commences at the same time. The question here may be what does birth
mean?
Birth simply mean physical extrusion or complete separation of a child from his
mother's womb either naturally or through operation. However, the mere physical fact
of delivery is not sufficient to acquire personality. The child whatever long it might be
conceived must be born alive. This means, if the child is born dead or dies during birth
due to constitutional deficiency, it will not acquire personality.
Therefore personality of physical persons starts with birth.
This however raises questions as to the fate of the fetus for e.g. an eight and half months
fetus but not yet born?
The law in this case provides exceptions. Art. 2 of the civil code sets out a merely
conceived child is deemed born whenever his interest so demands. Fetus may be
considered born while it is still in its mothers womb. This is in order to protect his
interest in the future. For example, when the father of a fetus dies before it is born, it
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could have lost the right to inherit had the law hasn t considered him as born and enable
it to participate in the inheritance.
In this case the law puts further requirements in addition to being born alive and this is
viability. The fetus t be considered born, while it is in its mother s womb, must be (born
alive) and viability. Viability here means the potential to live as a human being for some
time. How can we know the viability of the child? The law under art 4 provides the test
of viability viz-living for 48 hours and more. Living for 48 hours is a diving line for the
child to be considered as viable under Ethiopian law. If the child dies before 48 hours, it
is not supposed to be viable and hence does not acquire personality under the law.
However the presumption of viability may apply when death before 48 hours is caused
due to external factors e. g. accident.
2.1.5. Capacity of persons
As you remember from our previous discussions, we have said that every individual has
rights and duties inherent in their personality without distinction. However does this
mean that they all can exercise such rights and duties by themselves i.e. personally and
directly. For example, can a 5 year boy sale his car?
The answer to the question is simply no. the reason is individual human beings need to
have capacity in order to exercise their rights and duties. Mere holding of rights and
duties do not suffice. The next question thus is what capacity is? Who have capacity and
who havent? When incapacity ends under the law? The answers to these questions are
given in the following discussions.
Capacity is the ability to exercise rights and duties. So it is the legal competence to do
one or more legally binding acts. In order exercise rights and duties, persons need to the
required capacity. Obviously there are some members of society that do not have the
capacity. In fact the rule regarding capacity is that everyone is presumed to be capable.
This presumption of the law has a number of consequences. In the first place, persons in
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principle are entitled to enter into juridical acts with others as the law presumes them
capable. Secondly, when there is question on capacity, the person denying another s
capacity must prove the same. This is consistent with the established rules of evidence.
The rule on capacity is, of course, a general rule. As such it admits exceptions. The
exception is incapacity to exercise rights and duties. Therefore exceptionally the law
declares some categories of persons as incapable of fully exercising their rights and
duties i.e. concluding various juridical acts.
2. 1.6. Incapacity
Incapacity is lack of ability or legal competence to exercise rights and duties under the
law. Incapacity, as an exception, need to be stated b an express provision of the law.
The law classifies into two major groups: - General incapacity and Special incapacity
General incapacity is based on age (minority), mental condition and consequences of
criminal sentences. Special incapacity is based on nationality
A). Minority- is the incapacity that emanates from the young age. The law makes
children below the full age o 18 years incapable. These people are termed as minors.
The rational for making minors incapable is to protect them from harassment and
problems from their own acts and the acts of others. Hence minors cannot perform valid
juridical acts unless expressly permitted by the law to do so. So any unauthorized act of
minor is subject to invalidation. Here the question may arise as to whether children can
benefit from their rights inherent in their personality. The answer to this question is yes.
What minors cant do is to exercise rights directly by themselves. They can however be
represented by matured persons to perform juridical acts. Such representatives of
incapables in general and minors in particular are organs of protection
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The Law thus provides for the institution of guardian and tutor. The guardian
represents the minor in respect to his personal care (interest) such as upbringing,
education, medication, marriage or any other act or contacts other than economic
interest. Art.216 (1) of the RFC emphasizes this as- A minor as regards the proper care
of his person shall be placed under the authority of a guardian. This institution protects
personality interests of the minor as stated above.
The tutor, on the other hand, represents the child in relation to economic or financial
interests. Art 216(2) of the RFC starts- In matters concerning his pecuniary interests
and the administration of his property, a minor shall be represented by his tutor.
Pecuniary interest here means economic or proprietary interest. The tutor represents the
minor in all matters relating to economy or commercial transactions. He may purchase
things for, sell or enter into contractual arrangements on behalf of the minor etc.
The question now, is who may be a guardian or tutor? Parents are natural guardian and
tutors of a child as there is no one closer to the causes of a child. If either of the parents
die or become incapable, the other will be guardian & tutor. There may also be a
testamentary guardian or tutor appointed by will of father/or mother .when there is no
natural nor testamentary guardian/tutor, the court will appoint as guardian or tutor from
the blood(consanguinal) or marriage( affinal) relatives taking in to a account the interest
of the child . But when there is no relative, the court may appoint other persons
A question that may cones to your mind is whether a child below 18 can t at all perform
acts of civil life? As you might have noticed, the incapacity of a minor is not absolute
rather restricted (relative). Hence, minors approaching to maturity are entitled to do
some acts of legal nature. They can for example purchase school supplies like pen &
pencils of daily necessities. Moreover, others like concluding contracts not in excess of
300 birr under the authorization of the tutor), receive and dispose income derived from
their work at the age of 14 and above, make will at age of 16 and above, can be done
by the minor. If there is no authorization from the tutor or there is excess of power, the
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act will be in valid suppose. Girum, 16, purchased mountain bike for 1500. This
transaction is beyond the power of the minor and has no legal effect i.e., cannot be
enforced.
Minority may come to an end when the child attained majority (full age of 18 years) or
emancipated. A child maybe emancipated by marriage concluded after he attained 16
years upon authorization of appropriate government organs for serious reasons .he may
be explicitly emancipated by court decision after he attained 14 years considering his
maturity & practical necessities to enable the minor to act by himself. Where, minority
ends, there is no more incapacity and he can enter in to valid juridical acts of any sort.
B). Insanity or infirmity -a persons mental faculty or understanding may be affected

due to various causes like mental disease, illness, old age, accident or disability. As a
result, the person may lack capacity of understanding the nature and consequences of
his act. Insanity and infirmity are defined under arts 339& 340 of the civil. Code
respectively.
Accordingly, an insane person is one who as a consequence of his being insufficiently
developed or as a consequence of a mental disease or of senility is not capable to
understand the importance of his action. Feeble-minded, drunkards or habitually
intoxicated persons and prodigals are also assimilated to insane persons.
Here insanity refers notorious insanity. Persons who are inmate of medical institutions
or for whom a watch over is kept in rural areas are considered to be notoriously insane.
The law extends full protection to the interest of such persons and their heirs by making
their acts invalid.
Infirm person on the other hand are persons like deaf-mute who as a consequence of
permanent infirmity are not capable of taking care of themselves or to administer their
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property. The law also makes juridical acts of permanent infirm persons invalid as the
acts are not made with consent free from defects.
C). Judicial Interdiction-Judicial interdiction refers to court declaration that restricts

the capacity of a person. Persons with mental or physical problem may come under full
protection by being judicially declared as incapable of concluding valid juridical acts. In
effect, judicially interdicted persons will not be allowed to enter into juridical acts.
Instead, his personal and economic affairs will be taken care by organs of protection to
be appointed by the court i.e. guardians and tutors
The cause for incapacity is similar with that of infirmity and insanity. The difference is
with the extent of protection and the effect of acts done by both groups. Judicially
interdicted persons (JIPs) are legally prohibited from performing any juridical acts
unless the expressly allows and therefore any acts of JIPs are invalid. However persons
who are insane or infirm are not prohibited from doing juridical acts, but they can
invoke defect in consent or the impact of their health condition as a ground to invalidate
such acts. So any person seeking complete legal protection can apply to the court in
order to get better protection under the organs of protection i.e. only JIPs are assigned
with guardians and tutors.
D). Legal Interdiction

Legal interdiction is a process where certain rights of a person may be withdrawn as a
result of criminal conviction passed on him. The interdiction concerns his right to
administer his property so that he cannot exercise the right of an owner. For e.g. He
cannot enter in to contractual relations nor operate business
Hence, as far as his property is concerned, the rules regarding judicially interdicted
person are applicable i.e., a tutor will be appointed by the court to take care of his
property. While he himself will take care of his person viz- no need of guardian as his
mental faculty is intact).
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When he serves his sentence, his incapacity will came to on end and he will have full
capacity.
F). Foreign Nationality -This is special kind of incapacity where the person is disabled
from making certain acts while he is of age and/or his mental faculty is intact. The
incapacity is not however related to exercise of civil rights but of political ones like
participation in the administration of the country. The law makes foreigners incapable
to participate in to latter affairs, i.e., they cannot elect & be elected for political power.
These are rights where citizens only can participate. Sometimes such restriction extends
to certain economic activities and procedural barriers. For example in Ethiopia
foreigners can not engage in financial sector (banking and insurance) and in others there
are such additional requirements as resident and work permits, etc.
2. 1.7. End of physical personality

When do you think personality of human beings come to an end? Under the law
personality may come to an end in two ways- by death and by declaration of absence.
Article 1 of the civil code declares the first cause of end of personality i.e. death. A dead
body cannot be considered as a person. Death, nonetheless, shall he proved by medical
testimony.
A person may also lose personality when absence is declared by court of law. As stated
under Art 154 of the Civil Code, Where a person has disappeared and has given no
news of himself for two years, any interested person may apply to the court to declare
his absence. In this case the court assumes the person dead for all legal purpose and his
rights will terminates from that onwards.
Unit Three
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The law of Contracts
Dear Students! You are now in the central unit of your course, contracts in general. It is
the core unit in that it serves as a basis for the study & easier understanding of the other
units to follow. In this unit we will address concepts as to the definition and source of
obligation/contract, formation requirements & effect of contracts validly formed.
Contract is one of the basic social institution facilitating the day to day relationship &
interaction of society.
3.1. Definition of contract
The concept of contract is defined in more or less similar way under different legal
documents and law dictionaries. According to Blacks Law Dictionary, it is an
agreement between two or more persons which creates an obligation to do or not to do a
particular thing.
This definition essentially identifies such basic elements as the requirement of
agreements, the number of persons required and the nature of obligations created/
assumed.
In other documents, it is a legally enforceable promise or set of promises. Promise(s)
here means an agreement commitment but it should be legally enforceable ones. A
legally enforceable promise(s) requires the fulfillment of certain basic conditions as
capacity, consent, formality, if any, etc.
Ethiopian Civil Code Art.1675 also defines the concept of contract.

Art 1675 - A contract is an agreement whereby two or more persons as between
themselves create, vary or extinguish obligations of proprietary nature
Can you identify and analyze the essential components of the above definition?
Elements of the definition

i) Contract is an agreement the basis for contract is an agreement (consensual),
not legally imposed. But this does not relate to each & every agreements, rather
agreements with intention to be bound.
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ii) two or more persons- contract presupposes the existence of at least two
persons, that is one can not contract with him self. The maximum is not limited.
iii) . as between themselves this shows the limit of effect of contracts. It only
binds the parties to it and do not affect the right of third parties (outsiders).
iv) . create, vary or extinguish this recognizes freedom of contract i.e. the
parties can agree on any subject matter of their choice in creating new obligations,
varying/modifying that already existing or even extinguishing them but subject to
mandatory provisions of the law.
v) Obligations of proprietary nature means ordinary contract creates
obligations of patrimonial (economic) nature, that is, which can be expressed & valued
in economic or money terms. Hence it excludes agreements of status such as marriage,
betrothal, adoption, etc.
Comment more on contracts of status
3.2. Formation of contracts

This section will give you the basic idea about the legal requirements for the formation
of valid contract.
Under Art 1678, there are four basic essentialities for the making of valid and
sustainable contract.
 Capacity
 Consent
 Object
 Form, if any
3.2.1. Capacity: - Contracting parties should be capable of doing juridical act. i.e. acts
which can give rise to legal consequences. Capacity is mainly
governed under law of person & you can make a reference to it.
Generally contracting parties should not be minors, insane,
judicially interdicted person, legally interdicted person. Etc.
unless the law expressly permits.
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3.2.2. Consent: - It is the basis for any contractual relationships. Any contract depends
on the freely given consent of the parties. Ones willingness &
desire to enter in to and bound by the effects of such contract is
expressed through consent. There is no contract legally
imposed. But what are the modes/ mechanisms of expressing
consent by the parties. We have two important channels- offer
and acceptance.
3.2.2.1. Offer and Acceptance

Both are the mechanisms though which ones consent and intention to be bound is
expressed.
Offer means a persons expression of intention to enter in to a contract. It is the proposal
of ones willingness to enter in to and to be bound by the contract. The person initiating
contractual formation by offer is known as offeror.
The response given to or ones assent to the terms of offer is known as acceptance.
Contractual negotiation will be completed & lead to the creation of binding contract
when accepted by the other party called an offeree. The important requirement in both
cases is that both offer & acceptance has to be specifically communicated to the other.
Uncommunicated or undisclosed offer cannot be the basis for acceptance & similarly
uncommunicated acceptance cannot also create a contract.
An offer or acceptance can be made in any form as orally, in writing, by signs normally
in use or by conduct unless a special formality is prescribed.
Under Ethiopian Law, silence after offer is not count to acceptance i.e. it is not
sufficient to create contract. But the law also recognizes certain exceptions which after
offer silence amounts to acceptance. These include:-
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 When there is duty to accept Ex. an offer made to public utility undertaking to
get vital goods & services as to Tele, ELPA, etc
 When there is a pre-existing business relationships b/n the parties & when a
proposal for variation or renewal is demanded by the other party.
Ethiopian Law also enumerates certain acts which do not amount to an offer such as
posting up tariffs, price lists or catalogues or displaying goods for sale, or an action to
the public. All these are considered as mere declaration of intentions and an invitation
to treat any interested offerors.
3.2.2.2. Defects in consent

The importance of consent to the making of contract is unquestionable. However the
mere giving of consent is not sufficient to create a legally valid and sustainable contract.
There are certain factors which may affect or vitiate the giving of free & full consent.
Commonly known grounds for defect in consent under Ethiopian law are:-
 Mistake/ error
 Fraud /deceit
 Duress/ violence
i) Mistake is when one of the parties conclude a contract with some wrong or erroneous
belief. Misunderstanding or misconception of certain factual or legal situation leads
to a mistake. However, the law does not recognize every mistake as grounds for
vitiating consent. The two important tests should be proved:-
Mistake must be decisive and fundamental. It is decisive when it is capable of
determinating or convincing the other party to enter into contract. In other words,
had it not been for erroneous belief, the other party would not have concluded such
contract or concluded differently. Fundamentality requirement relates to the
elements of the contract. This is when the mistake is committed on the person
(identity or qualification) of contracting parties, the nature (type) of contract or the
subject matter of contract or obligation assumed by the other party. In most cases
proof of such facts are difficult.
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ii) Fraud is when the deceitful practice of the other party erroneously leads to the making
of the contract. In both mistake & fraud, there is misunderstanding of the real
situation. But in the later case, erroneous belief is created by the fraudulent act or
deeds of the other party or third party. Here also the fraud committed should be
decisive so as to invalidate the contract. E.g. P, a well-known jewelry, approached Q
and asked him to buy his 20 gm golden ear ring for birr 5000. Q being sure about
P`s statement agreed to buy and paid the money immediately. But later on Q
discovered that the ring is really made from silver only with small covers of gold. Is
such a K valid?
iii) Duress is when the consent of the other party is obtained/ exacted by violence. Here
consent is secured by coercive acts depriving ones freedom to make a choice. Such
coercive act may be committed against the life, person or property of the party
himself or to his close relatives (spouse, ascendants, descendants, etc).However
such act of violence should be reasonable i.e. serious & imminent (about to happen).
Example:-Ato B was one of the influential coffee exporter in Awassa. But now
things are not good for him. One day he threatened Ato C, another coffee exporter,
to sign on a cheque for birr 500,000 ordering the Dashen bank to pay. But Ato C
now objects the payment under such order which is obtained by force. Can he
succeed?
**reverential fear is also ground for in exception cause
3.2.3. Object
It is another essential precondition for the formation of valid contract.

Object refers to the respective obligations of the parties. Any obligation assumed by the
parties under the contract constitutes an object. Example, take simple case of contract of
sale. Here we have two parties - the seller & the buyer. The seller s obligation is mainly
to deliver the thing sold & transfer its full ownership. The buyer s obligation is mainly
to pay the price of the thing. Hence the respective obligation of both parties constitutes
an object of contract of sale.
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Object of K could be one of the three types
 to do to perform or achieve certain outcomes
 to give to deliver /transfer something
 not to do to refrain from doing sth
For the validity of contract, there are some further elements of object. Object of the
contract must be defined sufficiently. Parties to a contract must clearly state the object
of their contract i.e. the obligations of the parties should be ascertainable. If the object
of contract is not sufficiently defined or vague or ambiguous, it renders the contract
void & unenforceable.
i) Object must be possible
This means that the performance of the obligation of the parties must be humanly
possible. It should not be beyond the capacity or power of human beings. Initial
impossibility renders the contract of no effect /void.
E.g. A K to construct a G+10 building by only using pure water
ii) Object must be lawful & of good moral. The obligation of the parties must be to
perform something lawful and moral. The object of the contract should not
contravene legal provisions and go against the generally accepted moral standards.
Failure to observe this rule also renders the K of no effect (void abinitio) E.g.
Contracts on the sale of land, sacred and cultural heritages/objects, to commit crime
(contraband), etc
3.2.4. Form
Form is the last exceptional requirement for the validity of contract. This is because
parties can affect their contract in any form, that is, there is freedom of form. Mandatory
or special formality comes by way of exception when:-
 The law expressly prescribes, Or
 When agreed by the parties.
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Owing to their nature, importance and the value involved, certain transactions may be
required to be completed in special forms. The following are among the categories of
contracts required to be made in writing:-
 Preliminary contracts made to facilitate the main contracts of special formality.

Ex. K of agency to sell immoveable property.
 Variation in the same form
 Any contracts relating to immoveable properties
 Contracts with public administration
 Certain contracts for longer period of time .E.g. K of insurance, guarantee, loan
exceeding 500 birr, etc.
The parties can by their agreement impose or create special formalities. E.g. written
formality
Hence when a special formality is prescribed by the law or agreed by the parties, it has
to be seriously complied with otherwise it remains void.
Finally for those contracts of special form, signature of the parties & attestation by at
least two witnesses are legally required.
Q. What do you think will be the effect of failure of such requirements?
3.3. Effects of contracts
An interesting feature of the institution of contract is that once it is validly and lawfully
formed, it is considered as a law on those so creating.
Art.1731 (1) Civ. C.:- The provisions of a contract lawfully formed shall be binding
on the parties as though they were law
A voluntarily created relationship becomes a binding law on the parties so creating and
any unjustifiable deviations from it will entail certain liabilities. E.g. duty of
compensating for economic losses due to its breach (non-performance).
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A discussion on the effect of contract will be made under the following major
subsections- interpretation, performance, variation, and non-performance & its
remedies.
3.3.1. Interpretation of contract

A contract validly formed has to be properly carried out. However dispute may arise
between the parties over the meaning of the provisions of the contract. Such disputes
are resolved by way of interpretation either judicially or extra-judicially.
Interpretation is the process of ascertaining or discovering the true intention of the

parties. However, the need for interpretation arises only when there is ambiguity,
vagueness or equivocality of the terms/provisions of a particular contract. In other
words, clarity avoids interpretation.
Once interpretation is sought, it will be made based on custom, equity (fairness), good
faith and the norms of normal business practice. The purpose is searching for the
common intention of the parties. In achieving this, events and practices before and after
the making of contract will be assessed. The context of the document may also give
some support.
If the problems can not be resolved in discovering the joint intention of the parties,
contract law favours positive interpretation and interpretation in favour of the
debtor.
3.3.2. Performance of contracts

Performance means the process by which one or both parties carry out his/their
obligation under the contract. If contractual obligations are properly discharged, it
serves as one ground for extinction.
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In relation to performance, there are two persons- the debtor & the creditor. A debtor is
a person who assumes an obligation and expected to perform for the benefit of the other
party. A creditor on the other land is a person who claims a right under a K and
demands its performance from the other party (the debtor).
Exercise: - Suppose Ato Cheno lent birr 4000 to his neighbor W/o Arenge. The loan is
to be paid back after 2 years with a 4% interest rate. But W/o Arenge failed to pay the
money on the agreed time. Identify as to who is the creditor the debtor in this particular
dispute?
Under this subsection, brief discussion will be made as to who may perform, to whom,
what to perform.
A). Who may perform?
Ethiopian law gives some flexibility as to who may actually perform contractual
obligations. Hence performance can be made by any person authorized by the
debtor (his agent), the court or the law. Agents can be delegated to substitute the
debtor and perform on his behalf. There may also be certain persons authorized by
the law or the court to carry out the obligations of the debtor. E.g. Guardians/tutors
of incapables, liquidators of succession, trustees of bankrupt estate, etc.
Hence, personal & direct performance by the debtor himself is exceptional & this is
when:-
 it is essential to the creditor- for those performances requiring personal
qualification or competence of the debtor ( E.g. artists, painter, professional
service, etc)
 it is expressly agreed by the parties. Here there is no need to prove essentiality to
the creditor.
B). Performance to whom made
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Basically performance (payment) has to be made directly to the creditor or to a third
person authorized by the creditor (his agent), the law or the court (as tutors, liquidators,
trustees, etc). If there is still a doubt as to whom to pay, it is safe to deposit in the court
of law or bank authorized by the law.
However payment to unqualified, incapable or doubtful creditor is not a valid

performance and risks the debtor for double performance unless the real creditor
confirms or the payment has benefited him.
C). what should be performed?

This related to the subject matter of the K. performance relates to what is agreed in their
K, no more no less. The creditor is not obliged to accept the thing other them the one
agreed in the contract be it in species, or amount (quantity) or quality.
However, when it comes to fungibles (things or items replicable/ interchangeable with

one another in nature as cereals, coffee, etc), minor or small deviations in quality or
quantity may be tolerated. Still the debtor can not go below the average quality. But this
toleration functions only when it is not essential to the creditor or not expressly agreed.
D). Place and Time of performance
Determination of place & time of performance of contract has an implication on cost,

currency to be used, jurisdictional issues, payment of interest for default, etc. The law
respects the agreement of the parties in determining the place and time of performance
i.e. the agreed place & time. In the absence of such agreement, payment will be made in
the address (residence) of the debtor (place) and when the creditor demands upon giving
notice (time).
3.3.3. Transfer of risk
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Risk in K means loss, damage or deterioration of the subject matter of the contract. It
relates to a K for determined or specific thing such as horse, chair sack of grain,cask of
wine, etc. Here the point is that who bears the risk if the subject matter of the K is lost,
damaged, reduced in value, etc.
Under Ethiopian law, the debtor bears the risk until the date (moment) of delivery.
Upon delivery, risk is transferred to the creditor. Hence the moment of delivery is the
dividing line for the transfer of risk. However sometimes risk may be transferred to the
creditor by legal supposition without there being actual transfer of the subject matter of
K. This happens when the creditor is late in taking delivery. Lateness in taking delivery
transfers risk to the creditor and the later is obliged to discharge his obligation (ex. Pay
the price) even if the subject matter of k is lost or deteriorated in the hands of the
debtor.
E.g. Ato A sold 100 quintals of fresh mango to Ato C, an owner of Yamare Grocery in
Awassa. Ato A is ready to deliver on agreed date9Sept.1, 2000 E.C.), but Ato C failed
to appear for 5 consecutive days despite A`s repeated call. The fruit was totally
destroyed in one of the nights due to heavy rainfall. Who shall take the risk for the loss?
Since the creditor (Ato C) is late in taking delivery though repeatedly warned, he bears
the risk and therefore he will be compelled to pay the price even if the fruit is no more
there.
3.3.3. 4. Variation of Contracts
To vary a contract means to change, modify or alter the terms or provisions of an

already existing contract. It is the situation where one or both parties require the
26
revision of the original terms of the K for different reasons as change of economic
situation, problems of performance, etc.
A contract validly formed will remain in force even if the obligation of a party becomes
more burdensome due to certain unforeseen event. Ethiopian Law dues not admit
variation for change of market or economic situation rendering the obligation assumed
more onerous. The court is strictly prohibited from interfering on such grounds. It is up
to the parties to regulate the consequences of possible future events either in their
original K or a new one to adjust such changes. The justification for such prohibition is
mainly to guarantee security of trade and to avoid high probability of litigation. Judges
cannot also accurately assess the changes in economic matters.
The above prohibition is a generally recognized rule. But exceptionally the Law also
recognizes limited grounds for court variation of contractual terms. These include:-
 When there is a special relationship between the parties demanding a special

confidence and loyalty to treat each other. The law expects a flexible solution
when the parties are specially related as blood, marriage or other close relations
as patient-doctor, client-lawyer, agent-principal, etc
 When the K is with public administration & when the decision (law) of such
organ renders the obligation of the other party more burdensome. Here the K is
varied in favour of the non-government party affected by the official decision or
law.
 When performance is partially impossible & when cancellation of the whole K
is not justified. Here variation is made proportionately by reducing the part
impossible.
 When the court grants period of grace for the other party. Grace period
(additional) time may be granted when time of performance is not sufficient &
reasonable.
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Ex1. Addo concluded a K of supply of sugar to Hawassa University at 5 birr per Kg for
2 years. But after 6 months the price of sugar has alarmingly increased to birr 8 due to
shortage of sugar cane. Addo wants to adjust the terms of K. Can he succeed? Here
there is no way to revise the terms of K unless they have a variation clause in their
original K or latter agreed to regulate such change of market situation.
Ex2. Sorato is a known contractor in Awassa. He agreed with the SNNPR Rural Road
Authority to construct the new Awassa-A/Minch road. However after Sorato has begun
his work, the government passed a decision imposing 15 % tax on gravel stones. This
has created difficulty for Sorato and incurred an extra expense of 800,000 birr. What
should he do?
Sorato can demand the revision of the K b/n him and the authority to the extent of the
inconvenience created by the official decision of the government or claiming damages
for extra costs incurred.
3.3.3.5. Non-performance and its remedies
A K lawfully formed should be properly discharged. Failure to do so entails certain

liabilities. Non-Performance of a contract occurs when the other party (debtor) fails to
carry out his obligations under the K. It is breach of ones contractual commitments.
This may include total or partial failure (inadequate performance) or delayed
performance.
When the fact of non- performance is proved, the aggrieved party can invoke one of the
remedies for breach. However, before involving such remedies, giving default notice is
an important precondition. Default notice is a notice (reminding) by which the creditor
indicates that he wants to obtain performance of the k. It means a warning which brings
the maturity of the debt and possible measures to follow to the attention of the debtor.
Giving default notice is advantageous in that it reduces court litigation when complied,
transfers risks, serves as beginning for default interest, etc.
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However, there are some instances where the creditor may not be required to give
notice. Notice becomes unnecessary in the following circumstances:-
 Where the obligation is to refrain from doing something (not to do obligation) &
when already breached.
 Where the debtor has declared in writing that he will not perform. This also
serves as a ground for unilateral cancellation of K.
 Where the parties have agreed in the contract that notice will not be given. Here
remedies can be invoked automatically.
 When performance is expected on a particular date or occasion & when such
time is expired. E.g. Cake to be prepared on weeding ceremony or birthday, etc
3.3. 3.5.1. Remedies for non-performance

The debtor may fail to discharge his obligation even after being warned by default
notice. Such breach of duties entails certain consequences. The law has devised some
remedies to which the creditor may resort. These remedies are:-
 Forced performance (specific performance)
 Cancellation
 Judicial
 Unilateral
 Payment of damages/compensation
A). Forced performance: -

As its name partly explains, forced performance or sometimes specific performance
means a remedy by which the court orders the debtor to carry out his obligation. It is a
remedy where the debtor is forced (compelled) to execute his contractual commitments.
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It is an exceptional remedy in that it requires court order and proof of two stringent
conditions.
The two cumulative conditions to obtain forced performance are: -
 Proof of special interest of the creditor, &
 Consideration of the liberty of the debtor.
Special interest of the creditor relates to the essentiality of performance by the debtor,
that is, if there is no possibility for the creditor to obtain a similar performance from
other sources or even if there are other sources where it entails the creditor considerable
expenses. E.g. Case of corporations providing vital goods & services.
Consideration of liberty of the debtor is that such order of the court should not violate
the personal liberty of the debtor. This is because contractual obligation does not result
in loss of personal liberty.
Exercise:- Muger Cement Factory agreed to sale 500 quintals of cement to Teddy
Building Works PLC in Sept. 2000 E.C .for birr 250 per quintal. But the factory failed
to deliver the products on time. Now there is no domestic factory producing the same
item. Importing from abroad is also highly costly i.e. four times the agreed price. Can
the PLC demand for forced performance?
B).Cancellation of contract
If non-performance occurs & when forced performance has not or can not be sought,
the next common remedy is cancellation.
Cancellation is the mechanism of avoiding or bringing to an end a contractual relation

ship due to reasons of non-performance. This can be achieved either through the order
of the court (judicial cancellation) or by unilateral decision of one of the parties
(unilateral cancellation).
i). Judicial cancellation
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This is when contractual relationship is avoided through the mediurn of the court. A
party aggrieved by non-performance can initiate cancellation action and the court can
declare cancellation upon finding justifiable grounds. In its decision, the court will be
guided by the requirements of art. 1785 Civil Code as fundamentality of the breach &
its effect on the very essence of the contract, the interest of parties, good faith, etc. If the
contract is successfully cancelled, the effect is reinstatement to the original position
before the making of contract.
Exercise: -Ato Kacha is a mechanic in A/Minch. He agreed with A/Minch University to

maintain two vehicles and finalize them within two months. Though 45 days have been
lapsed, no significant work is carried out. Being worried about the delay, the University
warned him by giving 20 days additional time. At the end of additional grace period, no
more than ¼ of the maintenance work is done. Now the University wants to take the
matter to the court for cancellation of the contract and claim damages for losses
suffered. What do you think will be the outcome of the action of the University? Give
your opinion under arts.1784&1785 of Eth. Civ. Code!
ii). Unilateral Cancellation

This is also another mode of cancellation where one of the parties unilaterally cancels
without going to the court. It is an exceptional right or power derived either from the
contract it self or the law. That is in principle cancellation should be demanded through
the court.
Ethiopian law recognizes certain limited & exceptional grounds for unilateral
cancellation. These are:-
 Cancellation clause- this arises from the express stipulation in the contract. It
suffices when the conditions are satisfied.
 Expiry of time limit in the K or upon giving notice- This is one of the
consequences of giving notice.
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 When performance becomes impossible this is the last option when variation
cannot be effected by way of reducing the impossible part.
 Anticipatory breach- this is when the debtor informs the creditor of his refusal to
perform in writing before the due date. Here there is no purpose to go to the
court.
C).Payment of Damage
Damage is a payment made to the creditor by the debtor to make good what the creditor
has lost due to the debtors failure to perform his obligations. It is a form of monetary
reparation (compensation) paid for economic losses due to non-performance.
Damage can always be claimed by proving the fact of non-performance & resulting
losses even in the absence of fault (strict liability). The debtor is liable to pay damage
except when his failure is due to force majeure. Force majeure means an occurrence
(event) that the debtor could not have normally foreseen and prevents him absolutely
from performing his obligations. Hence any foreseeable occurrences or those only
rendering the obligation more onerous are not considered as force majeure.
The following are some of the cases of force majeure (Art 1793 Civil Code):-
 Unforeseeable act of persons outside the contract
 Prohibition of the performance of the obligation by a newly enacted law.
 Natural catastrophes such as earthquake, lightening, floods, etc.
 International or civil war
 Death or serous accident or unexpected serious illness of the debtor him self.
Unless one or more of the above grounds are proved, payment of damage is mandatory
irrespective of fault.
Can you mention few exceptional grounds where damage may be paid only upon proof
of fault?
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How amount of damage fixed? The amount of damage can be fixed by the contract
called penalty clause or assessed under the Law
The amount of damage that the debtor pays is as a rule equal to the damage that the
creditor has suffered. That is the damage that is normally & reasonably expected due to
breach of a particular contract. This is called normal damage.
Some times greater damage than the normal damage may be demanded when the debtor
is informed with special situation & need of the creditor or such is due to the debtor s
intention to harm the creditor. Lesser Damage can also be paid when the debtor proves
that the loss is less them the normal damage.
What do you think is damage for money debts? Payment of default interest is the
substitute for damages in money debts. The rate of interest may be fixed in the contract
(contractual rate) or paid at the rate fixed by law (legal interest) that is 9%.
Exercise: -Ashu is, a known comedian in Awassa, agreed to lead a music concert
organized by Climax nightclub for Sept month of 2000. Many people from Awassa and
the surrounding bought tickets to attend the concert for Ethiopian Millennium. Bedele
beer factory agreed to supply a great deal of beers. Elifora Agro-Industry also agreed to
supply fresh meat for the occasion. However the concert cannot be conducted as
scheduled because Ashu changed his mind and went to Addis for another attractive
concert to be held in Sheraton Addis. Please advise as to what remedies are available for
the nightclub and those affected by the act of Ashu?
3.3.3.6. Extinction of obligations (contracts)

Contracts are not lifetime commitments. They are made by people for a certain period
of time for some specific purpose. Hence such contractual relation ship may extinguish
(come to an end) due to various causes. The following are common ground
extinguishing contractual relations under Ethiopian Law: -
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 Where they are properly and adequately performed by the parties in accordance
with the terms of K (performance)
 Where the contract is invalidated for problems at formation stage or cancelled
due to problems of performance.
 Where the K is terminated i.e. its future force & effect is avoided either by the
agreement of the parties or the court order.
 When a new obligation is substituted for the original obligation by the
agreement of the parties called novation. E.g. Kassim borrowed birr 2000 from
Murrado. But Murrado is unable to pay. Thus they agreed that Murrado will
continuously deliver his future coffee harvests. Hence the original loan K is
changed(novated) to new K of delivery
 When the debtors obligation is set off by an obligation owing from the creditor
to the debtor reciprocal cancellation of two debts. E.g. X owes 1500 birr to Y;
while Y owes 1000 birr to X in another K. Here the two debts can be set off up
to 1000 birr. X will only pay the remaining balance i.e. 500birr
 When the positions of creditor and debtor are merged in the same person
called merger. E.g. M & S are father and son. M lent 1200 birr to his son (S).
But M died before receiving the money from S. Now S is the only heir of M and
he is no more a debtor because there is merger b/n S & the rights of his father
(M).
 When the creditor has not demanded performance of the obligation within the
period fixed by law called period of limitation. (ይርጋ)
Unit Four
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Law of Sales
So far we have been dealing with contracts in general. The concept of general K is
applicable to all relationships arising from contract. This is mainly true for various
categories of special contracts such as contract of sale, agency, insurance, donation
pledge, mortgage, and so on.
This unit focuses on contract of sale one of specialized types of special contract
governing the relationships between persons involved in sale contract i.e. the respective
rights and duties of the seller and the buyer.
4.1. Definition and formation of contract of sale

4.1.1. Definition of contract of sale
Art. 2266 of the civil code defines K of sale as: -

A K 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.
According the above definition, there are some basic defining elements of
contract of sale. A contract of sale: -
I. Is a contract seller-buyer relationship is created by contract and hence all the

validity requirements of K should be there i.e. capacity, consent, object, and
form, if any/.
II. Essentially involves two parties- the seller and the buyer.
III. Involves a reciprocal obligation of the parties which constitute object of K of
sale. The sellers obligation is to deliver the thing sold and transfer its
ownership, while that of the buyer is to pay the price for the thing.
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IV. Involves a thing as its subject matter. Here subject matter of sale provisions are
corporal chattels /ordinary movables/. Hence it does not apply to immoveables
and special movables as vehicles, ships, aircraft, etc/ which are regulated under
separate provisions of the law.
4.1.2. Formation of Contract of sale
Formation of sale K is more or less similar to that of general K. It requires all the
validity conditions. That is parties to it should be capable and give free consent. The
object of sale K should also be lawful and of good moral and comply the required
formality, if any. The normal rules of offer and acceptance will also be there.
A sale K may relate to an existing thing or things to be produced in the future

when such is possible. If a thing is capable of being produced later on, the K is valid.
Moreover, a K of sale may relate to thing belonging to the seller him self or to the third
party. The later instance is when the agent /esp. commission agent/ sells the thing
belonging to his principal.
4.2. Performance of contract of sale

Like any other contract, sale contract manifests the reciprocal rights and duties of the
parties to it. Hence obligations under sale K have to be properly carried out by the
parties.
4.2.1. Obligation of the seller
The seller assumes certain obligation under contract of sale. This can be imposed by
the law or the contract. Among the legally imposed obligations of the seller are:-
 Obligation to deliver the thing
 Obligation to transfer ownership and warrant against total or partial
dispossession
 Obligation to warrant against defects and non- conformity.
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i. Obligation to deliver
To deliver means to hand over the thing to the buyer. This enables the buyer to enjoy
with the thing. Delivery may involve change of hands or names or intention to possess.
The seller can discharge his obligation by using one of the three modes of delivery.
 Actual delivery
 Constructive delivery
 Symbolic delivery /delivery by documents/
Actual delivery is when the seller actually and physically hands over the thing to the
buyer. Constructive delivery is when the parties do something which transfers intention
to possess such as declaration by the seller to hold the thing on behalf of the buyer or
when the buyer him self is originally in possession of the thing.
Example: -Daro is a farmer in Alaba. He sold his only cow to his neighbor (Bargecho).
But Bargecho allowed him to keep the cow and use half of the milks. Is there delivery?
Yes, because now Daro holds the cow with a changed mind i.e. on behalf of Bargecho.
In symbolic delivery, a document or some other thing representing the thing sold is
delivered. Ex. Delivering the title deeds, bill of lading, key, etc.
The thing delivered should be the one agreed in their contract. Place and time of
delivery is similar to that of general contract
ii. Obligation to transfer ownership and warrant against Dispossession
The main purpose of K of sale is to transfer ownership and use and enjoy it unless the
sale relates to ownership reserved. Mere delivery may not be sufficient to transfer
ownership. Thus the seller should discharge his duty by transferring unassailable
/unchallengeable/ right or title to the buyer. The title transferred should be valid and
peaceful i.e. not encumbered with the rights of third person. The seller is held to give
legal warranty for the peaceful enjoyment with the thing sold i.e. seller gives warranty
against total or partial dispossession.
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Exercise: - Mate sold a used tape recorder to Dulecha for birr 1300. However it was
discovered later on that the real owner of the thing is not Mate; but Simanu who kept it
with his friend (Mate). So identify the right available to Dulecha and the liability of
Mate?
However, the buyer may not enjoy with the benefits of implied /legal/ warranty. These
are
 Knowledge of defective title during the making of K i.e. when the buyer
knowingly acquires the thing encumbered.
 Exclusion of legal warranty against dispossession by agreement. But such
exclusion clause may not apply in case of concealment of certain facts
iii. Obligation to warrant against defects and non-conformity
The seller has an additional obligation that the thing delivered should not only be
peaceful /free from the claims of third persons/, but also it should be useful /serve its
purpose/ and as agreed in the contract. The first /usefullness/ relates to case of defect
while the later to the case of non-conformity.
Warranty against defect

Defect of the thing relates to the quality, utility, use or usability of the thing i.e. whether
the thing can serve for the purpose it is purchased. But when is a thing sold and
delivered said to be defective?
A thing sold can be considered as defective and hence warrantable by the seller
when: -
 It does not possess the quality required for its normal use or commercial
exploitation. This is the quality normally required for personal use /consumption/
or for resale in case the buyer is the merchant /merchantability/. Ex. Indenia bought
a 21-inch Konka TV. But the TV can not show any picture i.e. has only sound
(lacks visual quality)
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 It does not possess the quality for particular use agreed expressly or implied from
the K. This is when the interest of the buyer is communicated but the thing
delivered lacks such quality. Ex. Taye is a coffee exporter. He agreed with Busha
for supply of coffee. However Busha delivered a coffee of ordinary quality. It is
defective for it does not satisfy export standard
 It lacks the described quality or specifications. This applies when the detailed
qualities or compositions /contents/ are agreed but the thing does not conform to
such description.
The buyer before invoking the benefit of legal warranty has to comply with the
following:-
o Checking /examination/ of the thing during delivery esp. for obvious
defects
o Prompt notification as to the existence of any defects
o Careful /prudent/ examination
o Lack of knowledge about the defects
Warranty against Non-conformity
Here the seller stands as a guarantee whether the thing is the one agreed in the K.
Nonconformity is when there is a deviation between the one agreed in the K and that
actually delivered.
Accordingly, there is non- conformity and hence warrantable where the seller delivers:-
 Part only of the thing /partial delivery/-here the other part remains to be
delivered.
 Greater or lesser quantity than agreed
 A different thing or of different species than agreed
4.2.2. Obligation of the Buyer

Sale K imposes reciprocal rights and obligations on the parties to it. Thus, the buyer is
expected to discharge certain obligations. These are:-
o Obligation to pay the price
o Obligation to take delivery
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The main obligation of the buyer is payment of price. Sale K is of onerous nature which
is based on return of values. Price is the value given in return for the thing delivered. It
is expressed in money, not in goods. Payment of price may be effected either in cash or
by issuing commercial papers as cheques, bill of exchange, etc.
Taking delivery is another obligation complementing the seller s obligation to deliver.

Failure to take delivery transfers risk by virtue of law and the buyer may be compelled
to pay the price even if the thing has lost or damaged after such date.
4.2.3. Common obligation of the seller and the buyer

There are also certain obligations to which the seller and /or the buyer may be liable
either individually or jointly as the case may be. Such obligations pertaining to both
are: -
 Covering expenses such expenses may include those incurred during the
making of K, Payment, delivery, transportation, taxes, etc
 Preservation of the thing both the seller and the buyer have the reciprocal duty
to preserve the thing at the expense of the other. Failure to do may entail some
liability to the other party
Exercise: - Dina concluded a K of sale of `habesha gomen` with Ashebo for his
small grocery in Hossaina. After delivery, Ashebo found that some of the things
delivered are useless. He immediately notified the fact to Dina and warned him to
take it back. After waiting for one day, Ashebo left it out. The thing was totally
consumed by the wandering goats over the night. Is the act of Ashebo justifiable?
4.4. Non Performance of contract of sale and Its Remedies

One of the Parties to the contract of sale may fail to carry out his /her obligation for
various reasons such as failure to deliver, pay the price, etc. If such happens, there are
legal mechanisms devised to assist the one affected by such breach. After fulfilling the
procedural requirements/ as default notice/, the seller or the buyer can invoke one of the
following remedies.
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 Specific /forced/ performance
 Cancellation of the K
 Payment of damage
However, we found unnecessary to discuss this portion for we have already dealt with
under law of contracts. Hence students are advised to refer to the discussion made in
the previous unit.
Unit Five
Law of Agency
Introduction
Agency is a way a person perform legally binding act by the instrumentality of another
person. A person especially in the globalized world may have many functions. As a
person cannot be in many places and
As a person cannot be an expert in many disciplines and in many places at the
same time, he needs the help of another for his business to function well. Due to need of
specialty, one may not be able to do a given task. This is what is called representation
whereby a person performs an act on behalf of another.
The person acting by the instrumentality of another is called principal. The person
who represents another in juridical acts or performs on behalf of another is called the
agent. The principal is the one who gives instructions for getting things done by another
in the way he likes; while the agent is person who receives instructions from the
principal and actually does the act. The person who actually deals with the agent is
called third party.
In this unit you will deal with the rules regulating the process of representation, kinds
of authority of an agent, effect of an agency, rights & duties of the parties and
termination of agency relations ship.
5.1 Sources of Agency

A person to act on behalf others shall have an authority. The source of authority may be
the law or contractual agreement. Sometimes the law authorizes a person to represent
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another. In majority of cases the authority arises from agreement. The concern of this
unit is the latter type-contractual agency.
5.1.1. Authority by operation of Law

In certain defined situations, the law authorizes a person to represent another person.
These persons are usually incapable persons, persons whose economic interest is at
stake and legal persons.
Do you remember our discussion in unit two about incapable persons? Persons
incapable to enter into juridical acts are minors, persons with mental defect and
disability and legal interdicts.
a) Representation of incapable persons

Minors are persons who did not attain majority- the full age of 18 years. Because of
immaturity, the law provides for representatives who act on behalf of the minor. These
are guardians and tutors. In this kind of representation, there is no prior agreement
between the minor and guardians and tutors. The law its self authorizes them to act on
his behalf and protect his interest .Likewise, the law provides for mechanisms to protect
interdicted persons and inanes. Thus such persons are to be represented by guardians
and tutors in all their dealings. Here again the law authorizes such persons to act on
behalf of the incapable persons without prior contractual agreement. Though the
rational is different, legal interdicted persons are also to be represented by tutors in
relation to their economic interest.
B) Unauthorized Agency
This kind of agency is termed in popular legal language as agency of necessity or
representation that takes place in case of urgency. The term unauthorized agency is used
to mean the person who acts on behalf of another has no prior approval or consents of
same. He thus acts deliberately to safeguard the interest of another from unexpected
happening knowing that he has no authorization to do so. Say for example Ato Dagim
gave a truck full of tomatoes for Ato Girum to confine it for two days until he takes
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back. Unfortunately, Dagim did not return for weeks and the tomatoes are about to
rotten. What would you do if you are encountered with such scenario? If Girum sold the
tomatoes before it rotten it will be a case of unauthorized agency. But you should not
have any possibility of communicating with person to obtain authorization.
C) Curator
Curator is a person appointed by a court to do an act or certain kinds of acts where the
person to be represented is not in a position to appoint an agent for he is away, ill or for
any other cause. The court appoints a curator up on application of relatives or spouse of
the person to be represented. Once appointed the kind of relationship between an agent
and principal well be established b/n the curator and the represented.
5.1.2. Contractual Agency
The second and usual source of agency is contract. Art 2199 of the code defines agency
as follows. Agency is a contract whereby a person, the agent agrees with another
person, the principal to represent him and to perform on his behalf one or several legally
binding acts According to this definition, agency is a contract, a special type of
contract. Hence all the elements of a valid contract must be fulfilled
V.2Kinds of Authority of an agent
The authority of an agent may be actual or apparent. The power of an agent is said to be
actual where the power is given explicitly in writing or orally or by implication. The
person may be authorized implicitly i.e. by implication. For example Jafer is authorized
to sell kebedes automobile. The authority to sell the automobile is authority expressly
given. But this authorization has also implicitly authorized Jafer to receive the price,
deliver librie and so on. Implied authority is authority that naturally follows from the
express authority. Apparent authority is authority that third parties infer or assume a
person as an agent, though actually he has no either express or implicit power. Due to
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various reasons, there is appearance that led third parties consider a person as an agent.
Apparent authority exists when the agent acts with lapsed power (acts after the expiry of
the period of authorization), when a person keeps silent on the face of pretension as an
agent of him by another, when a person failed to communicate the revocation of the
power of authority to persons to whom he told of the power and when he failed take
back the document evidencing the power of authority after revocation.
Apparent authority cannot fully bind the person represented. The represented can cancel
it. But the apparent authority will make him jointly liable (with the agent) to pay
damages caused to third parties by cancellation of the contract. Third parties must enter
in to contract in good faith thinking that the agent has power.
Authority conferred on the agent may also be special or general. General agency is
agency expressed in general terms without specifying which act to do but simply
appoint one as an agent. Such power of an agent confers power to perform acts of
management such as preservation of property, collecting and discharging of debts,
selling perishable commodities and crops.
Special agency on the other hand, is power conferred in specific terms. Acts other than
acts of management require special power of agency. For example selling or
mortgaging house, investing capital, singing bills of exchange, making donation, bring
legal action, etc. require power specifically given for that purpose.
5.3. Effects of agency

The principle regarding effect of agency under Ethiopian law is provided under art
2189.
1) Art. 2189 complete agency Contracts made by an agent in the name of
another within the scope of his power shall be deemed to have been made
directly by the principal
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2) The principal may avail himself of any defect in the consent of the agent at
the time of the making of the contract.
third party who entered in to the contract with the agent.
3) Any fraud committed by the agent may be set up against the principal by the
third party who entered in to the contract with the agent
Where an agent act in the name of the principal and according to the authority given to
him, the agency is called complete agency. In case of a complete agency i.e. when the
agent acts using the name of the principal and according to the instruction of the
principal, a direct contractual relationship will be established b/n the principal and the
third party. The contracting parties are thus the third party and the principal. Principal
will be considered as though he has personally and directly made the contract. The
result is that the agent will be considered as an outsider after he has effected the dealing
with the third party representing the principal. For all the consequence of the contract-
benefits and responsibilities, the answerable parties are the principal and third party.
For example Tirrusew, the agent, sold Marus car according to the instructions of and
using the name of Maru. Delivery of the car however is not made. Here, the buyer
cannot proceed against Tirusew, the agent, for the delivery of the car. He can rather
directly ask Maru to deliver the car as though he personally contracted. The same is true
for claming the benefits.
By the same token, if the consent of the agent is affected during effecting the main
contract, it is the principal and not the agent who can invoke to invalidate the contract.
The third party can also invoke against the principal fraud committed by the agent.
However, if the agent doesnt use the name of the principal and/or he exceeds his
authorization, a direct contractual relationship b/n the principal and third party will not
be created. The principal will not be legally bound by the obligation of the contract. He
can thus repudiate it or ratify it as his own act as he chooses. In this case the third party
can directly proceed against the agent as the contracting party is taken to be the agent.
5.4. Rights and duties of Parties
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The law imposes certain duties on the agent and the principal. In addition depending on
the nature of the representation be effected and interest of the agent and the principal,
they may stipulate in the contract their duties.
When we take of duties of the agent, we are talking about the rights of the principal and
vice versa. This is so as rights and duties are correlatives. Hence when we discuss rights
of the agent, you should realize that these duties are rights of the principal and vice
versa.
5.4.1 Duties of agent
A). Duty to act in strict good faith
The agent should act with utmost care towards the principal. He should not conceal any
circumstance from the principle even if that may lead to revocation of the agency or
variation of its terms. What this means is that the agent should act in the exclusive
interest of the principal. He should not give priority to his interest or derive any benefit
with out the knowledge of the principal from the translation he performs in pursuance of
his authority.
He shouldnt also use to the detriment of the principal any information obtained in the
process of representation.
B). Duty of care and diligence
The agent when acting on behalf of principal shall take due care and diligence. The
standard of measuring such as is the diligence and care by a` bonus pater familias`
good father (art. 2211). If he commits defaults in the performance of the act that a good
father wouldnt, he will be liable.
C). Duty to account
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The agent has the duty to account to the principal any benefits and income he receives
and paid in the course of his activity. This is so even if the income and sums he receives
are not owed to the principal. But he used the principal s money, he will be liable to pay
interest at the legal rate (art. 2210)
D). Duty to act in person
The agent has the duty to make the representation in person. The agent is a delegate and
cannot delegate another to represent the principal. This is the principle as the principal
needed the personal qualities and expertise of the agent of the agent. This principle
however has exceptions. Thus when the agent is authorized to appoint a substitute,
where from usage it makes no difference whether the agent acts in person or by deputy
or where delegation is to interest of the principal, unforeseen circumstances hinder the
agent to carry out the act and is unable to inform same to the principal.
5.4.2 Duties of the principal
The principal has some duties towards the agent in consideration of the service of the
agent. The following are the most important ones: -
A). Duty to remunerate
The principal has the duty to remunerate the agent. Such duty of he principal usually
arises from the contract of agency. The parties will usually agree on the extent of
remuneration payable to the agent during the agreement sometimes however the
contract may be silent as to remuneration. In such case the law provides situations
where the agent will be remunerated. This is when the agent is a professional agent who
represent the principal in his professional duty or where remuneration is customary.
Otherwise the principal has no duty to remunerate.
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B). Duty to make advances and reimbursement
The affairs of the principal are to be taken care of by the agent not from his pocket
money. The principal should make available in advance all sums necessary to carry out
the activity. And incase the agent incurred expenses for the proper carrying out of the
agency, the principal has the duty to reimburse- refund the expenses.
C). Duty to release the agent from liabilities
The principal has the duty to release the agent from any liability he incurred while
executing the agency.
As such liabilities are incurred while the agent was acting in the interest of the principal.
The principal has the duty to free the agent. The principal has also duty to make good
the damage he sustained in the course of the representation unless it is caused by his
own fault.
2.5. Termination of Agency
Agent-principal relationship is not a lifetime arrangement. The law or either of the
parties may terminate the relationship. A brief account of each of these grounds follows
hereafter: -
5.5.1. Termination by the Parties
A). Revocation
The principal is always at liberty to revoke or cancel the power of agency conferred on
the agent without the need to give justification. This discretionary power of the
principal cannot be avoided by the contrary agreement. The principal however is liable
to make the damage caused to the agent by the act of revocation.
B). Renunciation
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Renunciation is termination by the agent. The agent can terminate the agency
relationship but by giving notice to the principal of the renunciation. The purpose of the
notice is to enable the principal to take measure to protect his interest and thereby avoid
damage that may be caused by sudden termination of the agency. However, if the
renunciation causes damage to the principal, the agent is liable to compensate it unless
continuing with the agency would cause suffering and considerable loss to him
2.5.2. Termination by operation of the law
The law terminates the agency relation when either of the agent or the principal dies,
declared absent, becomes incapable or adjudicated bankrupt (art. 2230 &2232) The
agent however is empowered to continue the management already commenced. Heirs
and representatives of the agent are also duty bound to inform the happening of any of
the causes and take the necessary actions to protect the interest of the principal.
Unit Six
Law of Traders and Business Organizations
The law of traders and business organizations is one of the important subject for
business students. It deals with who are considered as traders, the conditions in
operating business activity in Ethiopia, obligations of traders, the different types of
business organizations (formation requirements, business they can venture in and
dissolution of same). It has thus two parts: dealing with traders and business
organizations. Lets see first the law and principles governing traders.
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6.1. The law of traders
6.1.1. Who are traders?
The law is interested in differentiating persons engaged in trading and non-trading
activities as traders have certain duties under the law. The law of trader is governed by
the commercial code of 1960, other proclamations and regulations.
Traders are persons who professionally and for gain carry on any of the activities stated
in Art. 5 of the Com. Code. Art. 5 of the Com. Code enumerates 21 activities. If any
person carries on any of these activities professionally and for gain, s/he will be taken as
a trader. Few of these activities include:- dealing with movable and immovable items;
exploitation of mines, quarries, construction activities; carriage; publishing; and
printing, publicity and tour operation, operating financial activities, operating
entertainment (radio, television), operating hotel and café services, etc.
All persons who operate a given task for profit may not necessarily be considered as a
trader. Persons who undertake agriculture, forestry, fishery, cattle breeding, persons
who operate any activity at hand craftsman level are not considered traders. If a farmer
sells his sheep breed mainly from the resources of the land while he uses, he cannot be
deemed as a trader. But if he sells products of agriculture (e.g. mute) by processing
through agro- industry, he is considered as traders. So when a person (s) engage in any
activity beyond the usual practice of their business at a commercial level, they will be
considered as trader.
6.1.2. The right to operate business

In principle every person is free to engage in any type of activity in any part of the
country. This is a constitutionally guaranteed right (Art. 41 cum 32 of the FDRE
constitution). The constitution guarantees the freedom to engage in any trade of one's
choice. Nonetheless, as all freedoms are not absolute, freedom to operate business
activity is not also absolutely free. There are certain restrictions imposed by the law.
a) Incapable persons
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As you remember our discussion on incapacity, incapable persons cannot perform
juridical acts. As trade activities are juridical acts, minors and interdicted persons are
not free to carry on commercial activities. Art. 11 of the Commercial Code states:
"Persons incapable under the civil. code may not carry on any trade. Minors and
interdicts cannot even carry on trade activities even by tutors (Art. 12).
However where a minor is registered as a trader concealing his true age, his minority
cannot affect third parties unaware of the true age (Art.121). Likewise, if incapacity of
interdicted persons is not registered, the incapacity cannot affect rights of innocent third
parties.
b) Married persons
Though it seems simple case of restriction, married persons are not as free as bachelors.
S/he has to obtain the consent of the other spouse in order to carry on trade. Failure to
secure consent will not impede the trading activity of the spouse. The effect is that
when the objection is registered, debts contracted by the trading spouse will not be
considered as common debt of spouses and cannot be recovered from the common
property of same or personal property of the objecting spouse. It can be recovered from
personal property of the trading spouse as personal debt (Art 20).
c) Foreigners
Foreigners are not free to venture trade in Ethiopia. Before they operate trade, they need
to obtain residence permit, work permit, investment permit and so on. Certain fields of
trade are entirely reserved for nationals and non-nationals cannot at all engage on them.
E.g. insurance and banking business.
d) Associations
Associations are organizations established to carry on non-profit making activities.
Some examples of associations are religious organizations, political associations,
civic /professional associations, NGOs, social associations, etc. The memorandum of
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association that established such organizations cannot contain trade activity. And
whenever they operate trade activities, it may be ground for dissolution. (art. 25).
e). Business organizations

Business organizations are grouping of people established to carry on trade activities for
profit. They can however carry on only activities stated in the purpose clause of the
memorandum of association - that they cannot venture on a commercial activity for
which they have not business license. (Art 26).
6.1.3 Obligation of traders

Traders have certain obligations imposed by the law.
These are: -
 The obligation to keep books and accounts
 The obligation to be registered
 - The obligation to obtain business license
a) Obligation to keep books and accounts
The Com. Code requires commercial business organizations and traders to keep
books and accounts in accordance with the business practice, regulations and
importance and nature of trade carried on. Petty traders however are exempted from
such an obligation. What do you think is the importance of such obligation?
b) Obligation to be registered
All commercial business organizations and traders have duty to be registered in the
commercial register before commencement of their activity. The process of registration
is regulated by proclamation No. 67/1997 and regulation No. 13/1997 and amending
laws. Thus, registration is mandatory to all traders having permanent work place (Art 5
& 3(3) of the proclamation & Regulation respectively).
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The proclamation has established three types of commercial registers managed by
regional bureau of trade and industry, ministry of trade and industry and a central
commercial register.
c). The obligation to have business license
Business license is an authorization / permission given by an appropriate authority to

carry out a certain commercial activity. It is a mandatory requirement for traders to
have permission before they venture in to the business. The purpose is to check the
respect of laws, enacted to safeguard the interest of the public, by the trader in his
activity. The process of obtaining
6.2. The Law of Business Organizations (BOs)

6.2.1. General
A person may carry out business or trade activity individually or in group with similar
people. When a person opts for the latter scenario, they should establish business
organizations.
What do you understand by the term "business organization"? Art.210 defines BOs as:
- any association arising out of a partnership agreement. Association here refers to
grouping of business persons and it doesn't refer to non-profit making activities. Thus
business organization is grouping of business persons arising out of partnership
agreement. What do understand by "Partnership agreement"? The com .code defines
partnership agreement as follows:
"A partnership agreement is a contract where by two or more persons who intend to join
together and to cooperate undertake to bring together contributions for the purpose of
carrying out activities of an economic nature and of participating in the profits and
losses arising out here of, if any (art. 211 com. code)."
Let's briefly see the elements of the definition for clear understanding.
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In the first place, partnership agreement is a contract. As it is a contract it should fulfill
all the elements of a valid contract. The parties should be capable to enter into
partnership contract. They should be of age, sound mental condition and not
interdicted. The business persons should give their consent freely to form the
organization. The object/purpose of the formation of the business organization must be
well defined, lawful, possible and moral. If it has undefined, illegal etc purpose, it will
not acquire legal personality. The agreement for the formation of the business
organization should also follow certain formality requirements. The agreement must be
entered in to in writing for it to be legally recognized as business organization (Art.
214). The other formality requirement is registration in the office of registration. In
order to be registered, there must be drawn memorandum of association and articles of
association that contains the agreement of the partners and the specific rules governing
the operation of the organization. Then after the business organization will acquire
legal personality.
Secondly, as partnership agreement is a contract there must at least be two persons. The
commercial code in majority of cases requires the agreement of at least to persons. In
case of share companies, however the law requires agreement of at least five persons.
on the other hand, the law doesn't fix the maximum number of parties except for private
limited company in which case the number can not exceed 50 members (Art 510(2)
com.code).
The parties to the partnership agreement should be willing to work together for common
goal. They must also be willing to make contribution to the business organization. The
contribution may be in form of cash, skill (e.g. to work for the business organization in
consideration of being a partner) or in kind (e.g. giving house). Contribution in skill is
allowed only for partnerships. Parties to companies must contribute either in cash or in
kind.
Fourthly, the parties must join together in order to carry out activities of economic
nature. Business organizations are established in order to carry on activities profit-
making activities. It cannot be established for non-profit making activity. Hence all the
parties are entitled to participate in the profit gained and are duty bound to share the
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losses incurred from the operation of business. Any agreement to give all the profits to
one partner or to relieve one or more partner from losses is of no effect. However a
partner in ordinary partnership who contributed skill can be validly excluded from
sharing losses.
6.2.2. Types of Business organizations
The Ethiopian law recognizes six types of business organizations. These are ordinary
partnerships, joint venture, general partnership, limited partnership, Share Company and
private limited company. Broadly they can be categorized in to three partnerships, one
joint venture and two companies. A brief discussion on each of the BOs is herein after: -
6.2.2.1. Ordinary partnership (O/P/P)
Art 227 of the com. code defines ordinary partnership as follows: -

A partnership is an ordinary partnership where it does not have characteristics
which make it a business organization covered by another title of this code.
A business organization that does not possess the features of any other business
organization is deemed as ordinary partnership. This is its unique feature that O/P/P is
always non-commercial. It can thus be formed to carry on activities of the type under
arts. 6 or 8 of com. code or others that do not amount to trading activities under Art 5.
But when such business organization ventures on activities under Art 5, its nature will
be changed in to general partnership by virtue of Art.215.of the code.
All members of ordinary partnership hold the same position:- the same rights and
obligations. Unless there is contrary agreement, the partners are jointly and severally
liable for all debts and responsibilities of the partnership where the partnership s assets
are not sufficient to settle the demands of creditors. Partners can exclude joint and
several liability by express stipulation. This however benefits them when such
stipulation is known to third parties and will not benefit partners who represented the
partnership in the transaction that brought liability.
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6.2.2.2. General partnership (G/P/P)

Art. 280(1) of the commercial code defines the nature of general partnership A general
partnership consists of partners who are personally, jointly, severally and fully liable as
between themselves and to the partnership for the partnership s undertakings. Any
provision to the contrary in the partnership agreement shall have no effect with regard
to third parties.
General partnership is a commercial business organization, unlike ordinary

partnership, where all the partners occupy the same status as a trader. Partners of
general partnership cannot exclude by agreement joint and several liabilities or such
exclusionary provision cannot affect the rights of third parties (Art.280). The creditors
however can demand payment from personal property of partners only after the
partnership asset is exhausted except for payment of fictious dividends- sharing of the
capital even where there is no profit. Creditors can demand payment of all or parts of
their claim from personal property of one or more of other partners. Such a partner can
then proceed against other partners to share the burden. This is the concept of joint and
several liability.
All members of G/P/P can be appointed as manager. Non-partners can also be
appointed as manager.
6.2.2.3. Limited partnership (L/P/P)
Art 296 of the com. code defines the nature of limited partnership A limited
partnership comprises two types of partners:- general partners in full liable personally
jointly and severally ;and limited partners who are only liable to the extent of their
contribution.
Limited partnership has two categories of partners- general and limited partners with
different rights and responsibility. General partners have the same rights and obligations
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like partners in general partnership. They have joint and several liability to the creditors
of the partnership where the latters asset are insufficient to pay the debts of the
partnership. They are also the one to serve as manager. Limited partners, on the other
hand, have no such liability. Their liability is limited to the extent of their contribution
to the partnership. Creditors cannot proceed against their personal property unless they
did not fully subscribe their contribution. They cannot also participate in the
management of the affairs of the partnership even under the power of attorney i.e. they
cannot be appointed as manager. That is why they are usually referred to as sleeping
partners. If one acts as a manager, he shall be fully, jointly and severally liable for any
liabilities arising out of his activities and in some cases to some or all the firm s
undertakings.
6.2.2.4. Joint Venture
Joint venture is defined under Art 271 of com. code as an agreement between
partners on terms mutually agreed and is subject to the general principles of law
relating to partnerships.
Joint venture is formed by partnership agreement that is not required to be in writing.
The formalities of registration and publicity are not also required. The effect is that
the organization will be kept secret and does not have legal personality. What is
known or disclosed to third parties is its manager who is responsible for all faults and
commitments arising out of the business. In fact the liability of other members will be
determined in the mutual agreement
6.2.2.5. Share Company
The code under Art 304 defines share company as follows:-
1) A share company is a company whose capital is fixed in advance and divided in to
shares and whose liabilities are met only by the assets of the company.
2) The members shall be liable only to the extent of their share holding.
Have you observed some unique features of this type of business organization in
particular and companies in general?
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A). Formation of share companies

Share companies can be formed in two ways: - formation as between founders and
formation by public subscription. When companies are to be formed by public
subscription, an offer for subscription shall be made by a prospectus singed by all
founders. The prospectus contains par values of shares, total shares issued, date and
place of subscription and other details under Art 318. Up on expiry of the time for
making subscription founders shall call general meeting of subscribers that among other
things, draw final text of memorandum and articles of association, verify fulfillment of
formation formalities, make required appointments. After registration and publicity is
made, the company acquires legal personality .
In case of formation as between founders, share will not be offered for public
subscription. Rather all shares will be allocated as between founders. Other procedures
are similar
B). some aspects of share companies

Limited liability- unlike partners in partnership, members in a share company as well
as private limited company have limited liability. The concept of limited liability is that
partners liability is limited only to the extent to their contribution made to the company.
Partners cannot be personally liable for the debts of the company i.e. creditors of the
company cannot proceed against personal property of share holders when the companys
asset are insufficient to pay of its debts. Hence, company debts can be paid only from
the companys asset and if it is insolvent, creditors will be losers.
Issue shares-the other important features of share companies is that their capital is
divided in to shares. Unlike partnerships share companies and of course private limited
companies issue shares to their members. The partners in Share Company are called
share holders. Shares are simply small units in to which the capital is divided into equal
parts. Look at the following example: - Access Bank is Share Company established by
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public subscription. The bank has issued a total of 200,000 shares with par vale of 1,000
birr. Can you know the total capital of the bank? The capital is calculated by
multiplying numbers of shares by the value-of shares- 200,000x1000=200,000,000.
Share companies issue share certificates that evidence the person is share holder and the
number of shares he holds.
Commercial business organization- unlike partnerships, share companies are always
commercial business organizations (Art 10) (2). This is also true for private limited
company. Share companies cannot be established to undertake non-profit making
activities or activities that cannot be regarded as trade activities.
Minimum number of members and amount of capital- in order to form all other
types of business organizations, the existence of at least two persons is sufficient. This
is not however possible in case of share companies. At least five persons are required to
form Share Company.
Likewise the law under Art 306 stipulates the minimum amount of capital needed to
form Share Company. The minimum capital is 50,000 birr and the par value (individual
share price) of shares cannot be less than 10 birr. This amount of capital is very
negligible to operate viable business in Ethiopia today.
6.2.2.6. Private limited company (PLC)
A). Formation
Private Limited Company can be formed by issue of shares. However, all the shares
must be shared among the persons forming the company. That means, it cannot
subscribe shares to the public to raise fund. Thus is principally because the individual
personality of members is more important in cases of private limited company than
share companies. Usually such kind of company is formed as between family members,
relatives and friends who know each other very well.
In order to form PLC, there must exist at least two persons. The law however limits the
maximum number of members not to be more than 50.
B). Important aspects of PLC
Generally, PLC, as they are companies, have similarity with share companies in many
respects. Members of PLC have limited liability- only to extent of their initial
59
contributions. PLC can also issue shares to their members. However the nature and
class of shares in PLC are different from that of shares. PLC can only issue registered
shares i.e. shares registered in the name of the member while share companies can issue
both registered and bearer shares. PLC can not also issue different classes of shares i.e.
shares with different par value and preferential rights.
PLCs, like share companies, can be established to carry out commercial activities. It can
not be established to perform non-profit making activities or activities reared as non-
trading ones.
Finally, PLCs cannot venture into financial activities such as banking and insurance.
The restriction is made to safeguard the interest of the public taking in to account the
nature of the business itself. Banking and insurance business requires hung capital
where as PLCs can be established with a minimum capital of 15,000 birr which is very
negligible. In addition, if PLCs are allowed to be formed with this minimum capital
fraudulent persons may easily defraud the public.
6.2.3. Dissolution of business organizations
Business organization may be dissolved due to various causes. The general grounds for
dissolution are stated under article 217 & 218. Business organizations may be dissolved
by operation of the law, by agreement or by court order.
Partners may dissolve the business organization by agreement when the purpose of the
business is achieved or can not be achieved or when the term has expired and so on.
Business organizations shall also be dissolved when there is death, incapacity or
withdrawal of partner or bankruptcy of the business. BOs can be dissolved by court
order when there is serous disagreement between partners or serious breach of duty.
When business organizations are dissolved, they have no more legal existence
/personality and cannot perform any act of legal nature. Finally what comes is the
process of liquidation and winding up of the remaining assets and liabilities of the
organization.
60
Unit Seven
The Law of Insurance
Concept of Insurance in General
Insurance is a special type if contract like sales, agency, etc. It is a device which
protects persons or entities from financial costs resulting from loss of life, health, or
property. It is a form of risk distribution scheme among certain categories of persons
exposed to a specified risk or danger e.g. fire, marine peril, etc. The following definition
shows the basic feature of concept of insurance:-
It is a contract whereby one party(the insurer) agrees to pay a specified sum on the
happening of a particular event(risk insured) to he other party or the party designated as
a beneficiary( the insured) who in turn agrees tom pay a sum in the form of premium for
its consideration.
The above definition constitutes some points to be considered:-
 Insurance is a contract- As one form of special contract, it requires all
essential elements of contract.
 It involves two parties-The insurer (underwriter) - the one who
undertakes to compensate the victim upon materialization of the agreed
risk and insured (assured)- the one seeking for insurance coverage
 The obligation of the parties to the K-One to compensate the
loss/damage (the insurer) and the other to pay premium in return/ the
insured)
 The requirement of risk or danger to be insured- it should be specified in
the policy
 Subject matter of insurance- insurance K can be concluded to cover any
interest -physical/material object
-intangible rights/ claims
-liability towards third party
 Special formality requirement- insurance K requires a special document
called the policy. The policy should contain:- place & date of the K,
61
names & addresses of the parties, the item, liability or person insured,
the nature of the risk insured, the amount of the guarantee, the amount
of premium & the term for which the K is made.
7.2. Some Core Principles of Insurance
i) Insurable Interest (II):- Any person seeking to get insurance coverage should
have some form of interest on the subject matter of insurance. The insured should
have a direct or indirect relation with the interest to be protected. He should be the
one to be benefited from its protection or prejudiced from its loss. For example in
property insurance, the insured can be the owner, lawful possessor, lessee,
mortgagee, etc. Generally there should be some pecuniary interest on the subject
matter of insurance.
ii) The principle of Indemnity: - The purpose of insurance is to restore/ reinstate
the loss that the insured has sustained, not profit making. There is a saying that the
insured shall be fully indemnified, but not more than fully indemnified. That is the
compensation to be given should be equal to loss actually & truly suffered. Thus,
the sum to be paid is co-extensive with the loss or less than it. This principle works
only for property & liability insurance, not to insurance of persons for human life &
body can not be exactly valued in monetary terms.
iii) The Principle of Subrogation: - This has a close link with indemnity principle.
The principle of subrogation embodies that the insured can not claim both from the
insurer and the third party liable for damage. Thus if the insured opts to get
compensation from the insurer, there is no chance to proceed against the person
causing loss unless insurance compensation is less than the loss sustained. If so, the
insurer, after indemnifying the ensured, can proceed against those persons liable for
the loss which is termed as subrogation. Here it should also be noted that
subrogation only applies to indemnity insurance (property & liability insurances)
iv)
7.3. Rights & Duties of the parties to the contract of insurance
62
It is usual to see the rights & duties of the parties in any contractual relationship. Both
parties can stipulate appropriate obligations in their contract subject to mandatory
provisions of the law. But there are also certain obligations of the parties specified y the
law.
7.3.1. Duties of the insured
 To pay the agreed premium premium is money paid to get insurance coverage.
It may be paid at the agreed time or within a month. If the insured failed to pay,
the insurer will demand by giving notice and then comes suspension &/ or
termination of the policy.
 To honestly disclose material facts that are necessary to appreciate the risk
insured. The insured is expected to give correct & full information so that the
insurer will decide to assume the risk or not & to determine the amount of
premium. Insurance K requires the utmost good faith (unberrima fide).
Concealment or non- disclosure of material facts may result in the cancellation
of the insurance policy & loss of the premium paid.
 To notify the increase of risk- any occurrences that may increase the risk
assumed should be notified to the insurer within 15 days for possible actions of
the later. Thus duty of communication still exists through out the duration of K
 To notify the occurrence of the risk insured within 5 days. Materialization of the
risk has to be disclosed to the insurer without delay.
7.3.2. Duties of the insurer

 To guarantee the beneficiary against risks specified in the policy that may arise
from.
 Unforeseen natural event
 Unforeseen act of third parties
 Negligence of the beneficiary or persons to whom the beneficiary is responsible
63
 To indemnify/compensate the assured upon the occurrence of the risk. When the
risk insured materializes & causation is established, the insurer is duty bound to
pay the agreed sum or the sum equal to the amount of loss.
There are certain cases where the insurer may not pay compensation to the insured
or beneficiary named:-
- When the loss falls out of the risk insured (uncovered risk) i.e.
lack of causation
- When the loss is due to war (civil or international)
- When the loss is caused due to the intentional act of the insured
- When the beneficiary killed the insured (in death insurance.)
- When the insured committed suicide (again in death ins.)
7.4. Types of Insurance
There are various forms of classification of insurance on the basis of different factors.
For example on the basis of the nature of event or occurrence insured, it may take such
forms as marine insurance, fire insurance, accident insurance, etc. or as personal
insurance, property insurance, &, liability insurance on the basis of the interest
affected. The later two categories (property & liability insurance) fall under what is
know as indemnity insurance. In indemnity insurance the amount to be insured and
compensated is based on the economic loss of the insured. However, in non-indemnity
insurance (personal), indemnity is freely determined & payable upon occurrence of the
risk.
In general, Ethiopian Law recognizes three broad categories of insurance:-

- Insurance of object
- Insurance of liability for damages
- Insurance of persons
64
Insurance of Object: - It provides insurance coverage to risks affecting property

interests. Here the amount to be compensated is required to be equal to the amount of
loss suffered. & hence subject to indemnity principle. It covers all tangible or intangible
property rights so long as the insured has an insurable interest. So owners, joint owners,
possessors, pledges, mortgagees, usufructuary, etc can validly insure.
Insurance of liability for damages: - Here what is insured is the civil liability of the
insured towards third party. That is the insurer promises to compensate on behalf of the
insured if the later incurs civil liability towards third party victims (personal or
property).
Ex, The liability of owners of car to passengers or pedestrians, liability of employers to
their employees, etc.
Insurance of Persons: - It is a scheme which provides guarantee for the insured s life,
health or bodily integrity or to any designated beneficiary. Here the insurer promises to
pay the agreed compensation to the insured or any nominated beneficiary upon the
occurrence of the risk insured. A distinguishing feature of insurance of persons is that
the amount of premium & esp. the compensation to be paid can be freely determined
and simply demandable upon the occurrence of risk insured. That means it is not
subjected to the principle of indemnity.
Insurance of person is further divided into:

o Insurance for the event of life: - This is when the insurer agrees to pay
a certain amount of capital or life interest in case the insured is alive at
the date (time) fixed in the policy.
o Insurance for the event of death: - Here the insurer agreed to pay the
amount specified in the policy either to the heirs of the insured or to any
beneficiary named in the K.
 But there is also a possibility for combined policy life &
death, which may probably require higher amount of
premium
65
Insurance against Accident: -It is a K whereby the insurer undertakes to pay
a specified sum to the insured person or to the beneficiary named where the insured
person is a victim of an accident. Accident includes any bodily injury arising out of
unexpected extraneous occurrences.
Insurance against Illness: - Insurance of against illness is an insurance scheme where
the insurer undertakes to pay a specified sum to the insured person or to the beneficiary
named in the policy (where the insured dies) in case where the insured person is a
victim of certain illness.
Unit Eight
8. Law of Negotiable Instruments /NIs/
8.1. Negotiable Instruments in general
Negotiable instruments, as can be inferred from its name, refer to various documents
which can be transferred /negotiated/ from one person to another either by simple
delivery or involving other formalities such as endorsement. Art. 715 of Ethiopian com.
Code defines NIs: -
A negotiable instrument is any document incorporating a right to an entitlement in
such manner that it be not possible to enforce or transfer the right separately from
the document
66
Thus NI is a form of document which carries a certain value on it and which can be
easily negotiated among persons involved.
The following are the basic definitional elements on NIs: -
 It is a document or a form of a contract in writing
 It contains a right to an entitlement i.e. a promise or order to give something or
pay a certain amount of money
 A right embodied can not be separated from the document /instrument/
 It can be easily transferred /negotiated/ from one person to another.
The Ethiopian law in particular recognizes as NIs such documents as commercial

instruments /papers/, transferable securities, and documents of title to goods.
Commercial instruments are those documents or papers which contain an order or

promise to pay certain amount of money. Ex. bill of exchange, promissory notes,
cheques, travelers cheques, etc.
Transferable securities are security documents that can be transferred from one person
to another containing certain form of intangible rights or claims. Ex. Shares,
debentures, life insurance policies, treasury bills, etc.
Documents of titles to goods are also part of NIs which represent the ownership of
goods and indebtedness. Ex. Bill of lading, airway bill, railway bill, etc.
Among the NIs mentioned above, this unit focuses on basic types and features of
commercial instruments /papers which have a great role in facilitating modern business
transactions and also serving as a substitute of money.
8.2. Types of commercial Instruments /CIs/
67
According to art. 732 of com. Code, Commercial instruments are negotiable

instruments setting out an entitlement consisting in the payment of a sum of money.
Thus CIs are part of NIs. They also principally contain an entitlement /order or
promise/ to pay a certain sum of money.
The law recognizes in particular such NIs as bills of exchange, promissory notes,
cheques, travelers cheques, and warehouse goods deposit certificate as commercial
papers.
A common feature for all types of CIs is that all contain an unconditional order to pay a
sum certain in money. Once the papers are mature /payment due/ and all other legal
requirements are met, the debtor is obliged to pay with out putting any other limitation
of whatsoever type. Hence a brief discussion of the first three important types of CIs is
in order.
8.2.1. Bills of exchange (B/E)

A B/E is a CI containing an order to pay certain some of money. It is a piece of
paper carrying an unconditional order to pay certain amount of money.
B/E Date ----------
Example Awassa
Pay to Ato A or his order Birr --------- on Sept. 2000 E.C

At ---------------
TO: Ato B
Atoship involves three
As can be observed from the model B/E, the relation
persons:- C
 /Sign./ to pay /A to C/
Drawer the person writing /issuing the bill to an other person
68
 Drawee the person who accepts the bill or the one ordered to pay the value
specified in the instrument /A to B/
 Payee the person for whose benefit or favour the bill is issued /A to B/. But the
drawer can order for his own benefit /drawer payee/
Basic requirement for the validity of B/E
A B/E to be valid and negotiable requires certain basic validity conditions and
these are:-
 The term B/E a s its caption /title/
 An unconditional order to pay a sum certain in money
 The mane of the person who is ordered to pay /drawee/debtor/
 The time of payment /maturity date/. Ethiopian law recognizes only four
categories of maturity for B/E:-
o At sight /up on presentiment to the drawee/
o At a fixed period after sight /after it has been presented for
acceptance/
o At a fixed period after date /after the date of its issuance/
o At a fixed date /if the date of payment has been fixed in the B/E/
 The place of payment
 The name of the beneficiary /payee/
 The date /time/ and place of issuance of the bill
 Signature of the person issuing the bill
With the exception of time & place of payment and place of its issuance, absence of any
one of the other conditions renders the bill invalid. Please try to check whether the
above model B/E satisfies the basic validity conditions with your friend /s/?
Negotiation /transfer/ of B/E

An important quality for CIs //B/E/ is their easy negotiability or transferability from one
person to another containing an n order or promise to pay a sum certain in money. But
69
negotiation of CIs or B/E mainly depends on the type of its forms and hence it merits to
identify the common forms of CIs /B/E/. A B/E may be issued to: -
o A specified /named/ person
o The order of such named person or
o Bearer /blank/ CI or B/E
A CI or B/E issued in the form of bearer is transferred by mere delivery of the

instrument. The holder of CI /B/E/ to bearer establishes his right to the entitlement as
expressed in the instrument by the sole fact of presentment of the said instrument. So
bearer CIs have some how a quality of money.
The holder of a CI /B/E/ in a specified name establishes his right to an entitlement by

the fact of his designation as beneficiary therein and in the register held by the person
issuing the instrument. Such B/E may be transferred by the entry of the name of the
transferee /beneficiary/ in the instrument and in the register held by the person issuing
the said instrument. It may also be transferred by delivery of a new instrument in the
name of the new holder.
Finally, to order CIs /B/E/ requires two steps for their transfer- Endorsement and then
delivery. Endorsement is the mark that the transferor /drawer/ puts on the instrument
esp. on the back of the document. The endorser usually puts a signature on the
instrument. Endorsement must be unconditional and hence any condition attached will
be of no effect. A partial endorsement is also null and void, considered as if no
endorsement is made. Any person signing on the instrument /endorser/ becomes liable
on B/E. In addition to endorsement, the instrument has to be delivered to the
beneficiary.
Acceptance and Payment of B/E
70
In our previous notes concerning time of payment, the four categories of maturity of
B/E are identified. As a rule most categories of B/E are payable upon maturity by
presenting for payment. However a B/E payable at a fixed period after sight needs to be
presents to the drawee for acceptance and for assurance to pay later on. Presenting the
bill for acceptance has two purposes. One, it serves as time framework for determining
the maturity date of the bill /due date counted as of the date of acceptance/. Second, it
also creates a contractual relationship between the drawee acceptor and the payee and
assures that the drawee will be liable to pay. Thus, there is acceptance by the drawee
where he reveals his intention to pay at maturity by writing the word accepted or any
another similar word and by signing on the B/E.
On the basis of the category of maturity, the B/E has to be presented for payment on the
due date or the next two working days. The drawee- acceptor and others as endorsers,
drawer, etc will be liable to pay the amount on the bill. The beneficiary demanding
payment has to deliver the instrument. The holder may not also refuse partial payment.
Exercie:-Tarik owes birr 7000 to Mitu and he thus issued a B/E ordering her debtor(Ato
Asrat) to pay the money 3 months from the date of acceptance. Mitu presented the bill
to Asrat 10 days after its issuance and Asrat accepted the bill or promised to pay the
money ordered. After securing acceptance, Mitu endorsed the bill to Ayana from whom
she has taken a Sony TV and tape recorder on credit for the occasion of Eth millennium.
When Ayana presented the bill for payment on due date, Asrat refused to pay the money
indicated. So what right is available to Ayana and who are liable under the bill?
8.2.2. Promissory Notes /PN/
Promissory note is a simplest form of CI which carries a promise to pay a sum certain in
money to a named person, to his order or bearer of the instrument. The maker of PN
unconditionally promises to pay a certain amount of money upon demand on due date.
71
A PN involves two persons: -
 The maker the one who issues the document and promises to pay to the
beneficiary or holder.
 Payee the one for whose favor the promise is made
The other aspects of PN such as validity requirements, forms, mode of negotiation,

etc are closely related and similar to that of the B/E. So students are advised to apply
their knowledge on B/E on these areas.
But can you identify some possible differences between PN and B/E? Take the
following as your guide:-
 The number of parties involved
 The nature of promise Vs. order
 The requirement of acceptance Vs. Visa of the maker /here the maker of PN
assures that he will pay the amount on the note on the due date/
8.2.3. Cheque
Cheque is one of the frequently and widely used CI. Like the other CIs, a Cheque
contains an unconditional order to pay a sum certain in money to a specified person
indicated, to this order or to bearer of it. When you open a current account, the bank
will give you certain copies of cheque. Accordingly, on the basis of their contract, such
customer /drawer/ can issue an order on his bank ordering to pay a specified sum of
money from the current account deposited.
Here again the validity requirements, form and mode of negotiation, etc of
cheque are similar to other CIs. However, cheque transactions have some unique
features distinguishing it from other CIs. Among these: -
 A cheque is always drawn on the bank i.e. the drawee is always a bank with
some prior contractual relationship with drawer-customer.
72
 Cheque dose not require acceptance proper, rather certification i.e. upon request
of the drawer the bank gives an assurance that it will pay the amount certified
and keeps /blocks/ such amount in separate account. This is effected by signing
on the face of the cheque
 Cheque has only one category of maturity i.e. at sight payable on demand by
presenting.
 The drweer is required to deposit or open a current account with the customer
bank.
Presentment and payment of cheque
A cheque is payable at sight or upon presentment to the drawee- bank. This

means that a cheque is mature at its issuance and therefore cannot be presented for
acceptance. It should be presented for payment within six months from its date of
issuance. The bank will pay by making verifications esp. on the signature against
samples deposited. In case of insufficiency of the cover, the bank can validly make
partial payment.
73

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By Admasu Alemayehu, Lecturer of Law, HU, 2007

 Law is a generic term consisting of different rules and principles of some

1.3. Function of Law

2.1. Concept of legal personality

2.1.1. Physical /Natural persons

2.1.2. Juridical Persons

These types of persons are entities such as organizations, association's, partnerships to

2.1.3. Attributes of legal personality

Attributes of personality are qualities or features of personality. And most importantly it

2.1.4. Personality of physical persons

2.1.4.1. Origin of personality

2.1.5. Capacity of persons

B). Insanity or infirmity -a persons mental faculty or understanding may be affected

C). Judicial Interdiction-Judicial interdiction refers to court declaration that restricts

D). Legal Interdiction

2. 1.7. End of physical personality

Ethiopian Civil Code Art.1675 also defines the concept of contract.

Elements of the definition

3.2. Formation of contracts

3.2.2.1. Offer and Acceptance

3.2.2.2. Defects in consent

It is another essential precondition for the formation of valid contract.

 Preliminary contracts made to facilitate the main contracts of special formality.

3.3. Effects of contracts

3.3.1. Interpretation of contract

Interpretation is the process of ascertaining or discovering the true intention of the

3.3.2. Performance of contracts

A). Who may perform?

B). Performance to whom made

However payment to unqualified, incapable or doubtful creditor is not a valid

C). what should be performed?

However, when it comes to fungibles (things or items replicable/ interchangeable with

D). Place and Time of performance

Determination of place & time of performance of contract has an implication on cost,

3.3.3. Transfer of risk

3.3.3. 4. Variation of Contracts

To vary a contract means to change, modify or alter the terms or provisions of an

 When there is a special relationship between the parties demanding a special

3.3.3.5. Non-performance and its remedies

A K lawfully formed should be properly discharged. Failure to do so entails certain

3.3. 3.5.1. Remedies for non-performance

A). Forced performance: -

Cancellation is the mechanism of avoiding or bringing to an end a contractual relation

i). Judicial cancellation

Exercise: -Ato Kacha is a mechanic in A/Minch. He agreed with A/Minch University to

ii). Unilateral Cancellation

3.3.3.6. Extinction of obligations (contracts)

4.1. Definition and formation of contract of sale

Art. 2266 of the civil code defines K of sale as: -

I. Is a contract  seller-buyer relationship is created by contract and hence all the

4.1.2. Formation of Contract of sale

A sale K may relate to an existing thing or things to be produced in the future

4.2. Performance of contract of sale

Warranty against defect

4.2.2. Obligation of the Buyer

Taking delivery is another obligation complementing the seller s obligation to deliver.

4.2.3. Common obligation of the seller and the buyer

4.4. Non  Performance of contract of sale and Its Remedies

5.1 Sources of Agency

5.1.1. Authority by operation of Law

a) Representation of incapable persons

5.1.2. Contractual Agency

V.2Kinds of Authority of an agent

B). Insanity or infirmity -a persons mental faculty or understanding may be affected

I. Is a contract seller-buyer relationship is created by contract and hence all the

Taking delivery is another obligation complementing the seller s obligation to deliver.

4.4. Non Performance of contract of sale and Its Remedies

father wouldnt, he will be liable.

According to art. 732 of com. Code, Commercial instruments are negotiable