Injibara University

School of Law
Department of Law

The Course of Business Law

Endegena Amare
February, 2020
 Unit One
General Introduction
1.1. Definition of Law
What is law?
 No universally accepted definition
 Different attempts -
 Though there is no universally agreed definition for the term- Law, it is commonly defined
as,
a system of rules, usually enforced through a set of institutions.
 the body of rules recognized and applied by the state for governing the conduct of
people in their dealings with one another.
 Also, the system of rights and obligations which the state might force.
 Law- shapes politics, economics and society in numerous ways and serves a primary
social mediator in relations between people.
 In order to maintain peace + security + order = rules of conduct = Law
 Bundle of laws- Law of Contract, property, criminal, constitutional…
 Meaning of Business Law
Definition:-
What is business law?
- It refers to the whole regulatory environment in which
individuals or ‘organizations’ engage regularly for the purpose of
securing commercial returns. It is a legal regime with the object of
shaping the behavior of “actors” in business transactions.
- intends to shape behavior in commercial transactions and ensure
the interaction is conducted in healthy and effective manner.
 1.2. General Features of Law
I. Generality – regulate the conducts of everyone without discrimination. The rights
and obligations- to all subjects of the state irrespective of any ground to the
otherwise.
- Law applies to all persons and cases save some exceptions e.g:- immunities
II. Normativity – law is a normative statement.
- Not mere description rather it is prescriptive tool- which purports to shape human
behavior in the future. i.e it doesn’t only describe a behavior but also takes a position.
Exam. the position of the law towards rape is prohibition.
- ‘is/ought’ dichotomy- what is vs what should be.
- Law prohibits, directs or permits a certain behavior
III. Law is enacted by the Legislator
- Every rule =/= law
- To be a law- it must be enacted by an authoritative body which has a constitutional
power to do so.
- authoritative body:- d/t in d/t countries #Common L.L.S Vs Civil L.L.S
Cont. General Features of Law
IV. Law is permanent
- In principle- there is no law which is enacted for a specific period of time.
- Law comes in to force to be effective for undefined period in the future.
- Frequently changing law- will create social instability + Losing of
legitimacy.
- However, Law is permanent =/= live forever
- They have to be reasonably flexible to accommodate changing social
realities.
- Exceptionally- specific law for a definite period – e.g.:- state of emergency
decrees
V. Law is backed by sanction
- Law may either prohibit, direct or permit the performance of a certain act.
- Failure- will entail penalty/ sanction
Cont. General Features of Law
VI. Law Enforcing Institutions
- law is backed by an established system of a state.
- with strongly institutionalized system of enforcement.
- The power of the government is divided between the three tiers of
government. Namely:- the
 Legislative- make laws
 Executive- enforce laws
 Judiciary- interpret laws
 1.3. Functions of the Law
- What would happen to you, your property and business if law didn’t exist? What
kind of benefits do you think you get from the law?
- Do you imagine society without law?
 the most important functions of law are:-
 To maintain peace, security and order within the society.
 It serves as a tool to bring social change. i.e. as an instrument of change.
# Law regulates the way a particular relationship is to be created, maintained and
broken.
e.g. Law of Contract administer contractual bonds of individuals.
- property laws governs property relationships of individuals.
- Business laws intend to shape behavior in commercial transactions and ensure
the interaction is conducted in healthy and effective manner.
# through law certain harmful traditional practices can be discouraged. E.g. early
marriage, FGM, Abduction etc.
Cont.

 as a tool to encourage investment; (in areas where the gov’t gives priority)
 it administers justice – outlaws arbitrary actions – redress
 as an instrument of social and economic change through the encouragement of
innovation and creativity- e.g. Copyright and Patent law.
1.4. Sources of Law
 Where is the foundation of law?
 Legislative, Judicial, Administrative and Custom= sources of law.
 The main sources of law in Ethiopian Legal system are:
 The constitution –supreme law of the land- sets frameworks
 The proclamation – by legislature (HPR& State councils)
 Treaties/conventions – international agreements- FDRE Const.
 Regulation – Council of Ministers through delegation and
 Directives- by ministerial offices e.g. Mry of Education/ Labour & social affairs
 1.5. Classification of Law
Why classification ?
For the purpose of convenience …
 Classification of laws is the systematization of the law based on the
subject matter for the purpose of finding the relevant law more easily and
determining whether different legal rules were required depending on their
area of application.
 Depending on different bases law can be classified differently.
 Public Vs Private Law
 Civil and Criminal Law
 Substantive and Procedural law
 Federal and State laws
 Domestic and International Law ###
 Unit Two
The Law of Persons
2.1. Meaning of the term “Personality”
 personality?
 “person” in law?
- The word "person" has a different meaning in law than the ordinary connotation
of the word "human being".
- "Person" is a legal concept & it is only persons who can have a right and
assume a legal obligation.
-Personality in law refers to the authority which is given by law to be considered
as a person and hence to have a right and assume an obligation.
- Personality is a precondition in order to obtain rights and bear duties as well as to
undertake juridical acts which have a legal effect.
Cont.
Kinds of personality in Law
- There are two kinds of persons in law i.e. subjects of law.
1. Natural / physical persons – are all about human beings.
2. Legal/ Artificial/ juristic/ fictitious persons – are entities which are the creations of law &
doesn’t have material existence. E.g. State, organizations, associations, companies,
partnerships etc.
Acquisition of Legal/ Artificial Personality
 legal personality can be acquired in different mechanisms. These mechanisms include :-
 through issuance of a particular legislation- e.g. public offices

 Carrying out Regisration

 Conditions of publicity. E.g. business organizations =
 Once the entities get legal personality they are recognized as equal before the law with
the human person.
i.e perform juridical acts, bears a right and assume an obligation like the physical
persons.
Cont.
Attributes of legal personality
A) Having a name- have the purpose of identifying the identity of a specific
legal person.
B) A person may sue or be sued in its own name – a capacity to bring a legal
action against another and/or to defend a legal case brought against itself.
C) A person may administer and own a Property - legal persons own and
administer a property through an agent.
D) A person can enter in to a contract-
E) Obligation to pay taxes- obligation
Cont.
Acquisition of Physical Personality
 How?
 Article 1-4 of the Ethiopian Civil Code deals with acquisition of physical personality.
Article 1. Principle
The human person is the subject of rights from its birth up to its death.
It means that human beings enjoy, or hold rights starting from the time
of birth. Hence, there is no personality before birth or after death.
Article 2. Child merely conceived- Exception (Unborn child (fetus))
A child merely conceived shall be considered born whenever his interest
so demands, provided he is born alive and viable.
Cont.

Article 4. Viable or not viable child.

(1) A child shall be deemed to be viable where he lives for forty­eight
hours after his birth, notwithstanding any provision to the
contrary.
(2) A child shall be deemed to be not viable where he dies less than
forty-eight hours after his birth.
(3) The presumption laid down in sub-article (2) may be rebutted by
proving that the death of the child is due to a cause other than a
deficiency in his constitution.
Cont.

 conditions of personality to be granted to an unborn or merely conceived

child :
1. The conceived child interest shall demand this recognition;
 The interest of the child justifies the grant of personality; i.e. only where the
advantages outweigh the duties or inconveniences.
E.g. it would be the interest of the conceived child to be an heir to the
succession.
2. The conceived child must born alive; i.e. a child dead in his mother’s womb will
never be considered as having had personality.
3. The child must be born viable. i.e. viability means the aptitude to live.
A child who lives for 48 hours is presumed to be a person from the moment
of his conception.
Cont.

Capacity of Physical Person

 capacity- is the ability to exercise rights and undertake a juridical act.
Art. 192. - Rule of capacity
Every physical person is capable of performing all the acts of civil life unless he
is declared incapable by law.
- Capacity is the principle whereas incapacity is an exception.
 Incapacity of Physical Persons
- Incapacity?
- why incapacity?
Types of incapacity
 There are two kinds of incapacity under the Ethiopian Civil Code.
1. General Incapacity:- based on age (Minors), mental condition (insane,
infirm, senile persons and the like) and/or sentence (sentenced persons).
2. Special Incapacity :- based on Nationality (Foreigners).
A/ Minors
“A minor is a person of either sex who has not attained the full age of eighteen
years” – Art 215 of the Revised FFC.
 PRINCIPLE:- Not Capable to undertake Juridical Acts.
 EXCEPTION:- 1. Contracts for the performance of acts of everyday life:
2. Contract for employment:
Cont.

B/ Judicially Interdicted Persons

- The court may sometimes interdict a certain categories of individuals
due to their mental problem.
- These individuals don’t understand the nature & consequences of
their action due to their mental condition.
- Insane persons:- because of mental problem.
- Infirm persons:- because of serious physical deformities e.g. a deaf
and blind person.
- Senile persons:- because of deterioration in mental faculty. E.g. old
persons.
 The court can declare the interdiction of the above persons with mental
deficiencies. Any interested party may apply to the court for the
interdiction.
Cont.
c) Legal interdiction
- through sentence because of the commission of a certain criminal act.

- A person will be legally interdicted as a result of the pronouncement of a legally

prescribed punishment for the violation of criminal law.
The End of Incapacity of Physical Persons

 Minority- by two ways

1) attainment of majority & 2) emancipation
 Judicially interdicted person:- when the court withdraws him from interdiction.
 Legal interdicted person- up on completion of the sentence/ through
pardon.
End of physical personality
Two ways:- 1) death- Art 1 2) declaration of Absence ###
 Unit Three
Business and Business Entities
Definition:-
Business? Elements of Business?
Article 124 of the Commercial Code defines business as:-
“An incorporeal movable consisting of all movable property
brought together and organized for the purpose of carrying out any of
the commercial activities specified in Art.5 of this Code.”
- It is incorporeal irrespective of the existence of corporal elements.
Cont.
In general, the term “business” embraces tangible and intangible assets, including:- Art
127 Comm. Code.
 Tools,
 Equipments,
 Raw materials,
 Goods in stock,
 Good will:- an intangible value of a business measured by reputation. Art 130. What if
good will is attacked by 3rd parties?
 Trade name:- for purpose of designation/distinguishing the business from others-Art
135 Comm. code
 Trade mark- -used to distinguish a certain product from similar products. Art 140
 Patent right:- is an exclusive right that is granted to protect inventions
(product/process).
 Copy right:- refers to the ownership of right to a work of the mind -Art 148-149
 The right to lease of the premises in which the trade is carried on -Art 142
 But, immovable properties cannot form part of the business.
 Business is a res, thing or object- over which a person can exercise property rights,
including ownership. Usufruct & lease.
 The Right to Operate Business
 Who has the right to operate business in Ethiopia?
- Art 41 of the FDRE Constitution- Economic, Social and Cultural rights
1. Every Ethiopian has the right to engage freely in economic activity and to
pursue a livelihood of his choice anywhere within the national territory.
2. Every Ethiopian has the right to choose his or her means of livelihood,
occupation and profession.
 Incapable Persons? Art 11 Civil Code
Art. 11 (1) Persons incapable under the Civil Code may not carry on any trade.
 What are the common provisions w/c are referring to rules of law that
apply to all forms of bus. orgn.??
 Formation: form, registration and license requirements must be respected.
(Except joint venture b/c writen form & registration requirement doesn’t
apply)
 Cont….
 Legal personality (a bus.orgn., except joint venture, has an independent legal
existence).
 Agency (they need a human person to represent them & make juridical acts).
 Sharing profits and Losses (their aim is to get profit).
 The law strictly forbids that a p/ship agre. may give all the prospective profits to one
partner, or relieve one or more partners of their share in the losses.
 Dissolution of a bus. orgn. Reasons:
1) by law (provisions in the law that states the occurrence of a given situation
dissolves the bus. orgn.).
2) by agreement (partners have the freedom to terminate their association).
3) by court (good cause, e.g serious failure of a partner to discharge his duties and
incapacity of a partner to carry out his duties due to infirmity/permanent illness).
 Cont….
BUSINESS ORGANIZATIONS /ENTITIES
- Definition

 Bus. Orgns. are undertakings with more than one member, having assets distinct from the private

assets of the members and a formal system of management, which may or may not include

members of the organization. (From the legal viewpoint)

Art. 210. - Business organization defined.
(1) A business organization is any association arising out of a partnership
agreement.
(2) Any business organization other than a joint venture shall be deemed to be a
legal person.
A partnership agreement?- Art 211
“a contract where by two or more persons who intend to join together and to cooperate undertake to
bring together contribution for the purpose of carrying out activities of an economic nature and of
participating in the profits and losses arising out thereof, if any.”
Cont.
Elements in the definition of BOrg.:
1. A Partnership agreement is a contract
2. Two or more persons, physical or juristic, can be parties:-
- applies for all BO’s EXCEPT S.C’s.
- maximum: no limit except for PLC’s- 50 members
3. Intent to Join Together and Cooperate :- they must have intended to collaborate on an
equal footing though they all need not intend to participate in the management and control
of the business organization.
4. Contributions:- in cash or kind or services [tangible/ intangible assets]
5, For the purpose of carrying out economic activities- Art 5
6, Participating in the profits and losses arising out thereof .
 Types of Business Entities/ Organizations
- B. Orgs may be classified into two basic types according to the general
characteristics they share in common: partnerships and companies .
 partnership-
Definition:- Art 211 of Comm. Cd
“is a BO that may be formed by two or more persons who desire to combine their
money, labors or skills to share business profits or losses.”
 Characteristics:-
 Formed based on the personal relation of its members. i.e. association of
persons (co-owners)
 are associations of persons and the personality of members does greatly
matter.
 unlimited liability of its members- Exception- limited partnership
 Companies-
 are associations of capital and the personality traits of shareholders are not
important to the existence of the company
 Is all about Public or Private Companies i.e. SC’s and PLC’s.
 Forms of Business Organizations in Ethiopia
The Commercial code of Ethiopia defines six forms of business organizations.
These are:
1. Ordinary partnership,
2. Joint venture,
3. General partnership,
4. Limited partnership,
5. Share company, and
6. Private limited company.
 Share Companies and Private Limited companies

Definition & Natures of S.C.

- SC is defined as:- Art 304 of comm.cd
(a) one which does not have restriction on maximum number of members
(b) whose capital is fixed in advance and divided in to shares
(c) inviting public to subscribe for shares or debentures of the company
(d) transferability of shares are free and
(e) the liability of the company is borne by the company itself.
Cont.
Natures of S.C
 Limited liability:- No member is liable to contribute anything more than
the nominal value of the shares held by him.
 Perpetual succession:- unlike partnerships, the life of S.C will not depend
on the life (death or incapacity) of its members.
 Transferability of shares:- as a general principle shares of Share Company
are freely transferable and can be sold or purchased in the share market.
 However, it is possible to restrict free transfer of shares in the articles of
association.
Cont.
Definition & General features of PLCs
 PLC can be defined as- Article 510 of comm.cd

A. a company whose members are liable only to the extent of their contributions

B. shall not have less than 2 and more than 50 members &

C. the shares held by its members can not be freely transferable out side the company unless it is

approved by majority vote.

General features of PLCs

 They are closely held between few individuals;
 They impose some degree of limit on transfer of shares;
 They are not allowed to issue securities to the public:- No public subscription of shares
 Separate legal personality and limited liability:- perpetual succession
 Often managed by members:- but sometimes managed by non-members
 Distinguished features of Company and Partnership
No Basis of comparison Company Partnership

1 Legal status Separate legal entity Separate legal entity

Exception - JV
2 Number of members Pvt. Ltd. Co –minimum -2 Minim- 2
maximum -50 Max – No Limit
Share Company – minimum – 5
Max – No Limit

3 Liability Limited Unlimited

4 Transferability of interest
5 Management
Principle- Freely Transferable Can not be transferred without the consent of
Exception- Subject to restriction all other partners
S.CS- by board of directors - Ownership and management in the same
PLCs- by managers (Member/ non- hands. All partners being owners are
members) entitled to participate in management
- Sometimes managers

6 Implied agency No member can act as an implied Every partner has an implied authority to
agent and bind the company bind the firm by his act.
7 Stability Perpetual succession & stabile - Unstable ###
 Unit Four
Law of Contract
The Concept of law of obligation?
 a law that requires persons to do, to give or not to do something.
 It regulates what persons must do and must not do in their civil relations.
Such as relations that exist in employment, partnership etc.
Source of obligation
 Two sources
1. Law as a source of obligation-
 These are legal obligations that are imposed by law and binding/enforceable on all
persons. For example
 The obligation to pay income tax:
 The obligation to compensate the victim of one's wrong:
 The liability of an employer for the action of his employee:
 The obligation of maintenance etc.
 Cont.
2. Contract as a source of obligations- is all about the obligation which is
created through consent/free will of the parties.
E.g:- obligation from sell contract, employment contract, contract of loan etc.
 But the law plays a great role in both contractual and legal obligations.
 philosophical concepts of Contract
1. Contractual freedom:
2. Enforceability of contracts:
3. The relative effect of contracts:
 a contract has no bearing on third parties, or parties outside that
contractual engagement are unaffected.
Cont.

Definition of contract
- Art. 1675 of the Ethiopian Civil Code. It states that:
"A contract is an agreement whereby two or more persons as between
themselves create, vary or extinguish obligations of a proprietary nature".
Elements:
A. Contracts are agreements
B. A contract needs at least two persons for its existence
C. “…as between themselves…”
D. The object of contracts is the establishment and performance of an
obligation
E. “...to create, vary or extinguish obligations…”
F. “…proprietary nature of the obligation…”
 Formation of a Contract
What are the requirements which must be fulfilled in order to form a valid
contract?
Article 1678 of the Ethiopian Civil Code states that:-
No valid contract shall exist unless:-
I. the parties are capable of contracting;
II. give their consent sustainable at law;
III. the object of contract is sufficiently defined, possible and lawful;
IV. the contract is made in the form prescribed by law, if any.
Four mandatory conditions
- Capacity:- legal capacity of a person to perform juridical acts.
 The ability to understand ones actions and the effect of those actions, persons with ability
to contract are legally competent.
 In pple, every physical person is capable of performing all the acts of civil life unless he is
declared incapable by the law. (Article 192 CC)
 Cont.
- Consent:- is a defect-free mutual agreement by the contracting parties.
The state of mind of the contracting parties to create a legally binding instrument.
Offer and Acceptance
How Consent is Expressed?- through offer & acceptance
- How to communicate each other?
Offer:- is a firm and definite (precise) proposal or a proposal made by the offeror to enter into a
contractual engagement regarding a particular subject matter.
- Three elements are necessary for an offer to be effective at law:
 serious intention (firm proposal),
 certainty or definiteness, and
 communication.
Acceptance:- Contracts are formed when the offeree accepts an offer.
- Acceptance is a voluntary act by the offeree that shows assent to the terms of an offer.
- It refers to the pure and simple agreement given by the offeree to the offeror. In other words, acceptance
must be absolute and unconditional in the sense that one must accept just what is offered.
- silence does not constitute acceptance- (Art 1682)
 Vices /Defects of Consent
- Vices of consent are defects that vitiate the validity of consent.
- It is the condition in which consent is not given freely & in full knowledge.
Art. 1696. - Invalidation of contract.
A contract may be invalidated where a party gave his consent by mistake or
under deceit or duress.
Art. 1710. - Unconscionable contract.
(1) A contract may not be invalidated on the sole ground that its terms are
substantially more favorable to one party than to the other party.
(2) Where justice requires, any such contract may be invalidated as
unconscionable where the consent of the injured party was obtained by taking
advantage of his want, simplicity of mind, senility or manifest business
inexperience.
 Effects of the existence of defects in consent- Voidable contract (Art 1808(1)
1. Mistake- Art 1697 & 1698 ff.
 as an erroneous belief in the truth of a situation or in the existence or otherwise of
something, when in fact the contrary is the case.
 Effect- Nullification of the contract
 All types of mistakes does not result the nullification of the contract- Rather only
decisive and fundamental mistakes will result the nullification of the contract.
[cumulative]
 Decisive Mistake:- subjective element – Art 1697
- a mistake is decisive when a party proves that he wouldn’t enter in to the contract
had he known the truth or reality. E.g:- where someone has bought an artificial
diamond believing that it is the real one.
 Fundamental Mistake:- objective element- Art 1698
- When it relates to the element/subject matter in the contract such as:
# Mistake as to the Nature or Object of the Contract,
# Mistake as to the Person:- identity or qualification of a person
(Glance to Art 1699&1700)
Cont.
Non-fundamental mistakes:- will not result the nullification of the contract. Rather these
types of mistakes will be corrected or neglected and the contract remains valid.
e.g. Arithmetic mistakes
- Motive
2. Fraud – Art 1704
- is misrepresentation of material facts to induce a person into a contract.
- is deceitful practice, intent to deceive, and the innocent party’s justifiable reliance on the
fraudulent practice.
- fraud will amount for the nullification of the contract when the party proves that he
wouldn’t enter in to the contract had he known the existence of the fraud or had he not
been deceived.
- Principle: mere false statement itself may not invalidate a contract.
- Exception:- where there is a confidential relationship among the contracting parties,
mere false statement will result the invalidation of the contract. E.g:- relations between
close relatives, agent and principal, and the insurer and the insured.
3. Duress
 threat of force or act of violence
 Effect- invalidation of the contract.
 Under duress, a person is denied the exercise of free will in
entering into contracts.
 Up on whom?
 to the life, liberty, or property of the party,
 the spouse,
 ascendants or
 descendants.
By whom? Either by the contracting party / 3rd party ###
 3. Object of Contracts
 is the third essential prerequisite for the formation of a valid contract.
Article 1678 of the Civil Code,
"no valid contract shall exist unless the object of the contract is
sufficiently defined, is possible and lawful ...”
- “Object” in law =/= thing
- rather it is the legal result which the parties wish to achieve.
- Parties are free to determine the nature and scope of the obligations in
their contract.
The general requirements that must be obeyed are three:
 The object of the contract must be defined:- lack of
clarity/vagueness, ambiguity or incompleteness in the contract
 The object of the contract must be possible &
 The object of the contract must be lawful and moral.
-
 4. Form of Contracts – Art 1719 ff
 is outward appearance of the contract, and so the way the will of the parties becomes
apparent.
Article 1719 Civ Cd
Principle:- No special form is required
Exception:- 1. when the parties agree to make a contract in a special form or
2. when the law expressly provides a compliance of certain formality.

♯ contracts that should be made in written form [1722 ff]

i. Contracts in relation to immovable properties;
ii. Contracts with public administration;
iii. Contracts of guarantee;
iv. Contracts of insurance; and
v. Contracts to vary written contracts;
 Written contracts:- must be signed by all the parties for signature signifies the
individualized consent of a party. Again, they should be attested by at least two witnesses,
or in some cases they may be alternatively authenticated by a public authority. ###
 Effects of contract
Article 1731 of the Civil Code
The provisions of a contract lawfully formed shall be binding on the
parties as though they were law.
• So, the general effect of the legally formed contract is enforceability.
• When there is vagueness/ un-clarity in the terms of the contract, the
issue of the interpretation of contracts will come in to being.
Accordingly, contracts will be interpreted :
In accordance with good faith + common intention of the parties &
contextually
 If the terms are clear enough, courts can't create a contract under the
guise of interpretation.
 1. Performance of the contractual obligation
- Performance is the execution of the contract in accordance with the terms
within it.
(1) Performance by Whom?
- Who is obliged to perform the obligation?
Principle- the Debtor
Exception- by third parties such as by the agent authorized by debtor/ by a tutor
appointed by the court/ by a legal heir
(2) To whom shall performance be made?
Principle: to the creditor
Exceptionally: to the third person authorized by the creditor/ court /law.
What if performance is made to incapable creditor or unauthorized
person???
 2. Non-performance of Contracts- Art 1771ff
- Is all about the total failure or breach or the non-compliance with the
terms/ promise of the contract.
- preconditions to invoke non-performance of the contract- making the debtor
in default by giving notice i.e. default notice (Art 1772)
- Effects of non-performance
 Specific performance, or
 Cancellation of the contract by court or by himself, and
 Damages (Article 1771)
 Damage may be claimed either alternatively or cumulative with specific
performance or cancellation.
1. Specific (Forced) Performance- Art 1776
 is forcing the debtor to perform his/her obligation.
Cont.
 is not absolute right of the creditor. Rather, two cumulative conditions
should be satisfied so as to force the creditor to discharge his/her obligation.
1. It should be special interest of the creditor as well as
2. performance doesn’t affect the personal liberty of the debtor .
2. Cancellation

Judicial cancellation – Art 1784 Unilateral cancellation - 1786

- Principle - exception
Grounds Grounds
good faith & interests of the parties - the provisions of the contract itself
 breach of fundamental provisions of the K or - performance impossible
 breach of the essence of the contract - expiry of time limit
- anticipatory breach.
 3. Damages / Compensation - Art 1790
- Alternatively or along with either specific performance or cancellation
a) Nature of Contractual Damages
Principle - Not fault based – Art 1791 (1)
Exception – defense of force majeure- Art 1791 (2)
– is unforeseen circumstance that makes the performance absolutely impossible.
(cumulative) - Art 1792
 Unforeseen circumstances ??? Art 1793
It includes the enactment of a law that prohibits the implementation of the K;
 a natural catastrophe such as earthquakes, thunder and floods;
 outbreak of international or civil war; or
the debtor's death or unexpected serious accident or illness etc
Cont.

Absence of Force Majeure – 1794

 strike or lockout occurring in the debtor's factory,
 increase or decrease in the price of raw materials necessary for the performance of the k,
 the passing of new law which makes the debtor's obligation more onerous.
Exception – Fault based (1795) e.g: Obligation of means, Gratuitous contracts etc

b) Extent of Damages
- Is left for the discretion of the court – Normal damage – 1799ff
- may be less or greater than the actual damage.
 Extinction of Obligations
- Is all about end of obligation.
grounds
1. Performance:- is full discharge/execution of obligation
2. Invalidation:- in times when there is a defect in the formation of the contract- effect
Reinstatement/ restitution (Art 1815)
3. Cancellation:- by court/ unilaterally - effect Reinstatement/ restitution (Art 1815)
4. Termination:- by agreement – have no retrospective effect. (Art 1819)
5. Novation:- is extinction of the existing contract by substituting it by a new one.
6. Set-off :- when the parties owe debt to one another.
7. Merger:- is when the debtor-ship and creditor-ship fall up on one and the same person.
8. Remission of debt:- when the Creditor releases the debtor from his obligation & the
debtor receives a release.
9. period of limitation:- is a duration(time) within which the creditor would bring a legal
action up on the debtor for the performance of his obligation. #####
 Unit Five

LAW OF NEGOTIABLE
INSTRUMENTS
Cont.
Definition of Negotiable Instruments
Art 715
(1) 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 instrument.
(2) The law recognizes in particular as negotiable instruments commercial
instruments, transferable securities, documents of title to goods.
- Is a document containing rights w/c can be transferred by delivery.
- “Negotiable” – means transferable from one person to another by
mere delivery/ some times by endorsement.
(Forms of transfer: may be to bearer, in a specified name or to order)
- “Instrument” – means a written document containing rights.
Cont.
- Is a special but simple document which entitles the possessor a
right to the entitlement as expressed in the instrument by the
presentment of the instrument to the debtor. So the person can:-
 pay money arising out of various contracts,
 receive goods under voyage,
 receive goods deposited in a warehouse etc.

Categories of NIs in Ethiopia:- 3 in number

 commercial instruments
 transferable securities
 documents of title to goods
 1. Commercial Instruments (Art 732ff)
Art 732:Definition
(1) Commercial instruments are negotiable instruments setting out an
entitlement consisting in the payment of a sum of money.
(2) Bills of exchange, promissory notes, cheques, travelers
cheques and
warehouse goods deposit certificates shall be deemed to be
commercial instruments under this Code.
- The most well known types of NI in Ethiopia.
- They are used as substitutes for money.
- The instruments are frequently divided into two: orders to pay
(drafts and cheques) and promises to pay (promissory notes).
 2. Transferable securities
- are NIs incorporating rights for payment of money.
- The sources of such rights may be:-
 investments made in companies or
 loans provided to the government or its subdivisions through purchase
of government bonds and treasury bills or
 loans provided to companies through the purchase of debentures,
transferable shares and stocks.
3. Documents of title to goods
- are NIs containing rights of ownership over goods that are being
transported, on shipment or goods which are warehoused and which
enable their holders to receive such goods. For example, bill of lading, a
truck-way bill and airway bill.
 Purpose of NIs
Main purposes:-
To facilitate commercial transactions and as means of
performance of money obligations; e.g. Commercial
instruments.
To raise capital in the form of contributions made by
purchase of shares and bonds, which is used for starting
new businesses or expansion of existing businesses thereby
increasing the production of goods and services in the
country; e.g. Transferable securities.
To creates convenience and facilitates transactions
involving the goods; e.g. a document of title to goods.###
 Types of Commercial Instruments
1. Bills of Exchange (drafts)
 are Nis incorporating an unconditional written order that involves three parties.
I. The Drawer - the party who signs and gives BE unconditionally.
- Orders the debtor to pay the money to a 3 rd party who holds the BE, the
payee.
II. The Drawee – the person who is ordered to pay the money unconditionally to the BE
holder.
III. The Payee:- is the person who holds the BE/ to whose advantage these order is made.

The Drawer The Payee

(The creditor) (The holder of BE)

The Drawee
(The Debtor)
 Conditions/ Requirements to be fulfilled in a Valid BE
Article 735 of the Commercial Code;
A BE shall contain:

(a) the term "bill of exchange" inserted in the body of the instrument

(b) an unconditional order to pay a sum contain in money;

(c) the name of the person who is to pay (drawee);
(d) the time of payment;
(e) the place of payment;
(f) the name of the person to whom or to whose order payment is to be made or an indication that it
shall be payable to bearer (bearer);
(g) the date when and place where the bill is issued;
(h) the signature of the person who issues the bill (drawer).
 What if one of these requirements fail to appear in the BE? What if there is defect in form?- defect in
form will be raised as preliminary objection & the BE shall not be valid.
 2. Promissory Note (Art 823 - 826)
Definition:-
is defined as a document incorporating an unconditional promise in writing
made by one person to another signed by the maker, engaging to pay, on
demand or at a fixed or determinable future time, a sum certain in money, to
or to the order or a specified person or to bearer.
 Two parties.

Promisor / Payee
(specific person/
Issuer / Maker bearer)
 Conditions/ Requirements to be fulfilled in a Valid PN
Article 823 of the Commercial Code;
A PN shall contain:
a) The term “promissory note” in the instrument.
b) An unconditional promise to pay a sum certain in money
c) The time and place of payment
d) The name of the person to whom or to whose order payment is to be made or a
statement that the note is payable to bearer (Payee)
e) The date when and the place where the note is issued
f) The signature of the person who issues the instrument (Promisor/ issuer)

 the promisor is liable for his/her promise.

 3. Cheques/Checks (Art 827 ff)
 is the mostly uses commercial instrument.
 almost similar with BE.
 It is an unconditional order in writing, addressed and signed by the drawer, to a banker,
requiring the bank to pay, on demand, a sum certain in money to or to the order of
specified person or to bearer.
 Three persons are involved:-

Drawer D
r Payee
a
w
e
e
 Conditions/ Requirements to be fulfilled in a Valid PN
Article 827 of the Commercial Code;
A cheque shall contain:-
a) an unconditional order to pay a sum certain in money;
b) the name of the person who is to pay (drawee);
c) the place of payment;
d) the date when and the place where the cheque is drawn;
e) The signature of the person who draws the cheque (drawer).
BE vis-à-vis Cheque
- Cheque is always drawn on a banker (drawee) + is always payable on
demand (acceptance is not necessary)
- BE- may be drawn on any one + payable on demand/ at a fixed time/
future time (acceptance may be necessary) ###
 UNIT SIX
LAW OF BANKING
TRANSACTION
 1. Deposit of Funds [Art 896 ff]

DFs is a contract whereby a person agrees to deliver and transfer the

ownership of specified amount of money to a bank which agrees to repay
them under the conditions agreed upon in the contract or on the demand of
the depositor.
 Principle:- Once the money is deposited in the bank, the bank is the owner
of the money & it can use it for other professional activities i.e. it can lend
it to other customers or invest it in the areas w/c are allowed by the NBE –
Art 896 of Comm.cd
 Exception:- when the deposit relates to coins and other individual monetary tokens
[ተለይተው የተሰጡ ጥሬ ገንዘቦች ወይም ሌላ ምልክት ያለባቸው ገንዘቦች) + +++ w/n there has
been an agreement that they shall be refunded in kind the bank does not acquire the
right of ownership and hence cannot dispose of such items.
Cont.
 In contract of DFs,
1st- the depositor should open the account in his own name
Then, the Bank should enter transactions made with the depositor in the
account
- In case of deposit by the depositor – the bank should credit his deposit;
- where as, in case of withdrawal- debit.
Types of accounts opened by the depositor may be either:-
1. Current account 2. Saving account
-The depositor can demand repayment at any time. – not at any time
- i.e. Repayment on demand. - at a certain fixed period
- It does not bear interest. - bears interest

 Can a depositor withdraw an amount greater than the balance in the account?
 2. Bank Transfer – Art 903 ff
Definition – Art 903
is one mode of transferring money from one account to another upon the written
and signed order of the transferor, and a means of performing money obligations.
- In this transaction the transferor’s account will be debited & transferee’s
(beneficiary's) account will be credited!
- BT order represents one form of demanding repayment by the depositor.

3. Hiring of Safes – [Art 919-924]

 A contract of HS is defined as a contract whereby a bank agrees to place at
the disposal of the hirer a safe or a compartment of a safe for a specified
period of time on payment of a rent.
 Duty of the bank:- duty to prepare the safe for the hirer & to keep it.
 Duty of the Hirer:- duty to pay rent
Cont.
 Things that may be kept in safes include:-
 Valuables such gold, silver, diamond (jewelries),
 Important documents such as title deeds, insurance policies, wills,
inventions and works of art etc.
 Banks deposit their customer’s values in either of the
following two ways:
1. ‘Safe - custody’- By accepting the valuables for safe-custody; banks
usually place the valuables in their safes together with other deposits.

2. ‘Hiring of safes’ -By hiring out safe deposit boxes to their customers;
 4. Discount- Art 941- 944
 is a contract b/n the Bank & the Holder of the NI (particularly CI or transferable securities)

 whereby the Bank agrees to pay to the Holder of a NI- Having a future date of payment an
amount w/c is lesser than the actual value, against the surrender of the instrument and the
undertaking to repay the value of the instrument by the holder where payment is not made at the
maturity of the instrument.

 The bank pays a discounted amount of money and not the actual value of the instrument.

 Accordingly, the bank will charge the commission and interest – by taking the value of the
instrument as well as the remaining time for maturity of the instrument in to account, respectively.

 Once the bank pays the discounted money, it will acquire all the rights of the

beneficiary of discount on the instrument including the right to demand payment from
the person who is liable on the instrument.
 5. Credit Transaction- Art 945 ff
 Is a credit provided to a person engaged in foreign trade -
particularly importers who need to pay the price of goods in
foreign exchange.
 This type of credit is required because it is only banks which are
allowed to handle and deal in foreign exchange and importers are
required to pay the price of goods imported from abroad through
opening letters of credits.
Cont.

Communication

Importer Seller
Opening Branch /
Bank Corresponden
t Bank
 Unit – Seven

Labour Law
 7.1. Contracts of Employment
 Contract of Employment is a contract- whereby a person called the employee

agrees, directly or indirectly, to perform work for and under the authority of
another (the employer) for a definite or indefinite period or piece work in return
for wages. Art 4(1) of proclamation no 1156/2011.

 Elements:-

1. Agreement:- is voluntary engagement not forced.

2. Performance of work:- duty of the employee – to render personal service

3. Under the authority of the employer: - the employer have the right to direct,
supervise and control the manner and performance of the work by the employee.
Cont.
4. Length of employment: either for definite or indefinite period .
5. Wage: is the duty of the employer. Thus, employment relation is not a pro bono service rather than it is a service in return for wages.
 may be in cash or in kind
 May be daily, weekly monthly…

7.2. Formation and Terms of Contract of Employment

 Form – No special form unless the law provides so. Art 5 of the proclaim.
 Terms of CE - a CE shall specify the respective rights & obligations of each parties in the agreement including: -
 the types of employment . method of calculation of the wage,

 place of work . rate of wage

 manner & interval of payment, . duration of contract.

 CE – shall not be concluded for the performance of unlawful or immoral acts.

 Also, it shall not laydown less favorable conditions for the employee than those provided under the
LAW, COLLECTIVE AGREEMENT or WORK RULES.
Cont.
 Since CoE is a contract, parties are at liberty to modify the terms of their contract (Art 15
of the proclamation) and to suspend it (Art 17 of the proclamation).
 Suspension is a situation where the employee will not be required to provide service to
the employer and the employer will not be obligated to pay wages and other benefits to
the employee. Nonetheless, their contractual engagement remains intact.

 A contract of employment may be suspended for a variety of reasons. Some of the

grounds are:
- By agreement of the parties;
- Societal interest; e.g national call
- Due to reasons beyond the control of the employer; e.g. unforeseen financial problems
- Due to disciplinary reasons.
 Effects of expiry of period of Suspension:- Reinstatement / or sometimes termination
 7.3. Contractual Duties of the Employee & Employer

Obligations of an Employer- Art 12 of the procl.

 To Provide work to the worker in accordance with the contract of employment
 To Provide him with implements and materials necessary for the performance of the work;
 To Pay the worker wages and respect the worker's human dignity;
 To Take all the necessary occupational safety and health measures and to abide by the standards,
 To Cover the cost of medical examination, of the worker whenever such medical examination is
required by law or the appropriate authority.
 To Keep a register containing the relevant particulars here of weekly rest days, public holidays and leave
utilized by the worker, health conditions and employment injury of the worker;
 To Provide the worker, free of charge, with a certificate stating the type of work he performed, the
length of service and the wages he was earning;
 To Observe collective agreement, work rules, directives and orders issued in accordance with law.
 Obligations of the Workers – Art 13
 Perform in person the work specified in the contract of employment;
 Follow instructions given by the employer based on the terms of the contract and work rules;
 Handle with due care all instruments and tools entrusted to him for work;
 Report for work always in fit mental and physical conditions;
 Give all proper aid when an accident occurs or an imminent danger threatens life or property
in his place of work without endangering his safety and health;
 Inform immediately the employer any act which endangers himself or his fellow workers or
which prejudice the interests of the undertakings;
 Observe the provisions of this Proclamation, collective agreement, work rules and directives
issued in accordance with the law.
 7.4. Wages and Working Conditions to Employee

 Unlike other contractual relations, in CE the two contracting parties are not on equal

bargaining. As a result, the law doesn’t left the parties a lone to deal with each and every aspects
of the contract. Rather, it has put its own bench mark on this type of contractual relation called
the minimum working conditions.
 Most provisions of minimum labor conditions are related, but not limited to :-

 prescribing minimum wage;

 Limiting daily/weekly working hours;

 Provision of paid leaves;
 Employment security;
 Maintenance of safe and healthy working condition and
 Compensation for employment injury.
 7.5. Termination of the Employment Contract – Art 24 ff
 Under the Labor Proclamation grounds of termination could be categorized into the following:
 Termination by law
 Termination by the agreement of the parties
 Termination at the initiation of either of the Parties - Art 26 ff
1. By the initiation of the employer-(dismissal)
- With out notice or summary dismissal
- With notice or ordinary dismissal
- Group termination or lay off
2. Termination at the initiation of the employee-(resignation)
- Resignation with notice/ordinary resignation
- Resignation without notice (constructive dismissal)
 Effects of Lawful Termination
 Most of the consequences are attached with the ground for termination while
few others are available to all terminations.

These are the following:

 Certificate of Service
 Payment instead of unutilized annual leave
 Severance payment
 Compensation: -e.g. the permanent cessation of operation of the undertaking
because of bankruptcy or any other cause” are entitled to compensation. ###
The End