Final Business Law-1

Lesson 1
Business law
Welcome to the course business law. This is a course that is subsidiary to your main undertaking.
All of you are expected to be in the business aspect of study one or the other way. Assuming you
are familiar with the concept of business generally we directly go to the notion of law.
WHAT IS LAW?
Jurists (scholars of law) have come up with various definitions and meanings of law. Taking the
common elements and terms dominantly found in the definitions we can find the following points
A, law is an instrument of peace and order.
B. Law is a binding prescription of rights and duties.
C. law is an order that tries to govern the behavior of individuals.
You can also list many other elements as meanings of law. The basic points not to forget are
those stated as features or characteristics of law
1. BINDING ….unlike social norms and moral obligations which also have a role in
governing the behavior or action of individuals and society law is binding in that it has a
force that makes people respect it. If the law orders a certain event it is not at the option
of individuals to perform or obey it rather they are expected by the force of law to
execute it. For instance business persons pay taxes in relation to their trade not because
they necessarily want but rather because it is a law that states the act of paying taxes.
2. SANCTION ….if people go against the rules prescribed by law and neglect the binding
nature of it they will be penalized. The penalty aspect of law is expressed as sanction.
Going against the terms of a certain legislation or law will follow with a taking away of
property, liberty or life of the faulty individual or group of persons. It is this scary and
consequential aspect of law that gives it its binding nature different from moral
obligations.
3. GENERALITY….all laws are made to govern the behavior of society at large. A law is
not made having a specific individual at mind. the fact that laws exist aimed at protecting
the right of certain groups( like women and children) or stating the duties of certain
person(like president or prime minister) does not go contrary to the generality principle
as still the law is thinking of in groups than specific person ,as in mr.x or mr.y. This
nature of law is expressed by words in every law like…all persons, whomsoever, anyone,
nations, nationalities and peoples and the like.
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BINNYAM.A (LL.B, LL.M, MBA ( gc))
4. NORMATIVITY…. laws are weapons of shaping the behaviors of individuals. Had it not
been to the systematic approach of procedure and structured governance the human
behavior and its rebellious nature would have made life on earth a thing of chaos. It is the
law by its character of laying down relevant rules that tell people what is right and wrong.
Hence the law builds norms by which people should live. There are different ways of
building norms.
a. Prohibitive legal provisions- these provisions prohibit persons from undertaking or
performing certain acts. What the law wants to build as a norm is then the non
performance of the act. Example is taking bribes(corruption),killing
persons(homicide),taking a property of another(robbery or stealing)
b. Permissive legal provisions-these provisions permit the carrying out of certain acts.
People are at liberty to do the act and if they are not of comfort they are not obliged to
do. By preferring to abstain from the allowed act or activity they voluntarily vindicate or
lose the right of performing the act. Example is the right to vote, the right to
demonstrate, the right to associate.
c. Duties prescribing legal provisions- these are provisions which expect a person to act
on a certain behavior. The law expects an individual to perform what it is stipulated. The
difference from the prohibitive acts is that under this context a person is expected to do
while under the former a person is expected not to do. Example in this context can be
tax payment, acquiring business license before undertaking business, assisting a person
in a danger.
d. Rewarding legal provisions- the law wants the development of certain kind of behavior
in a society .one means of achieving this goal is then rewarding people who show that
behavior. Provisions of the law will state different benefit for persons who act in the
wanted manner. A reward for the person who returns a lost thing to the owner, a tax
holiday for certain investors who involve in a certain industry,
WHERE DOES THE LAW COME FROM?

The source of law or the question where is the law derived from has many answers. The basic
ones are:
 Religious documents and teaching…a mere visit to the ‘Fetha Negest’ magnifies this
concept.
 Custom of the society
 The need of the public
 Foreign or international sources
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 Nature itself
Speaking of the current situation the 1995 constitution is a source of Ethiopian laws. The
power to make laws is given to the public representatives in the house of people’s
representatives. In fact the public is the source of our current laws. Also recall the debate
which putting a ruling party or the government as a source of law.
THE FUNCTION OF LAW IS?

The law is there to guarantee the peace stability and order of society it carries out this
function by punishing wrong doers and compensating the harmed one (punitive justice)
making wrong doers to be better to their future (corrective justice) by building an economic
society where is the limited resource of the country are used in an equitable manner by all
(distributive justice) for the reality of performing this task different organs are established the
court/police/public prosecutor/public defender…
Roscoe pound has termed the elaborated role of law in a society in a brief way social
engineering or building a better society is the function of law.
AND KINDS OF LAW

The most prominent classifications
 National/domestic law Vs international/foreign law
 Civil law Vs criminal law
 Private law Vs public law
Lesson 2
PERSONS
Define ‘Person’?
The need to define person emanates of the fact that the laws we are to see are to apply on
’persons’. The common understanding we have on the term is that person is a human being. But
legally speaking a person is any being with rights and duties. The capacity to exercise rights and
duties is the defining element. If so, the word persons may not necessarily be limited to human
beings. We for fact know that non-humans like corporations and companies have rights and
duties. For example, St. Mary’s University College bears certain rights as well as is required to
fulfill certain duties.
Classify ‘Persons’?
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Persons in the legal sense of the term refer to either Humans (Natural persons or Juridical
(Artificial persons). The later incorporates companies and organizations. An example for
Natural persons is Any Ato Kebede/Lemma we know, while NIB bank sc, Ethiopian Orthodox
Church, St. Mary’s University College, or Ethiopian Commodity exchange are all examples of
Artificial persons. They are called Artificial mainly because their actual functioning is carried
out by natural persons and also it is the law that gives them the notion of personality via
‘consideration’, unlike natural persons who acquire it by the mere fact of being humans.
When does personality it start
The whole point in being labeled as a ‘person’ by the law is said the capacity to hold & exercise
‘rights’ and duties’. This capacity has a starting as well as ending time. For Artificial person’s
establishment is the starting point. Being established requires the fulfillment of proper
requirements, like adequate capital, needed man power, issue if acquiring license or registration
with the proper government office. The holding of rights & duties which starts via establishment
comes to an end through dissolution. Dissolution is usually manifested by liquidation and
cancellation from appropriate registered document. For Human beings the holding of rights &
duties start by time of birth and ends at death. Article 1 of the civil code supports same reading.
‘The human person is subject of right from birth to death’.
What is Birth?
Legal scholars lean to medical experts to find the exact meaning of birth. The existing attitude is
what we refer at ‘complete extrusion’ and ‘complete separation’. By extrusion one is arguing the
mere fact that the child is out of mother gives him the entitlement of birth while separation
advocates the total disunity of the child and the mother i.e. unless the umbilical cord is cut We
shall not consider a child a person, though he is outside the mother’s womb. This is considered
technical and even some suggest the distinction unimportant because of the almost no-time gap
between extension and separation.
What is Death?
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The law considers a person dead when vital signs of life, which are set by the medical world, are
no more in a person. These signs include heart beat, blood run, breathing system, body
temperature and the like.
The point is?
The human being is considered a ‘person’ by the law only from moment of birth. Birth is the
only criteria to be capable of holding rights and duties. Note that we are discussing ‘the holding’
of rights & duties than ‘the exercising’. Until age of knowledge is attained the entitlement a child
gets via birth will be made to use by persons of his surrounding, primarily families.
What about the conceived?
Imagine a scenario involving Sara, an 8 month pregnant wife and Tamirat a husband. After a call
that Sara is feeling sick Tamirat rush to home only to have an accident and then dies. Assuming
he has millions in bank.
Sara will inherit------- because she has a right as a wife
What about the baby in her womb...she can not
Because, According to Art 1, rights will be endowed only after birth. As such at time of Tamirat
death, there was no child born, i.e. no person. But In fact and in reality Sara’s child deserve some
thing. Therefore the law creates a mechanism of considering conceived children as born. Article
2 of the civil code stipulates same. The whole idea is a merely conceived child will be treated as
a born child (so that he will have rights) if
a. his interest demands:- is beneficial for him
b. he is born alive
c. he is viable:- lives for 48 hours after birth
This is cumulative requirements; as such all need to be fulfilled to consider a conceived child
born. In our situation Sara’s child will be considered a person, even though he was not born at
the time of his fathers death if it is beneficial to treat him as a person (yes it is, note that his father
has left him cash, not troubles) he is born alive (Jacques Vanderlinden states a child who comes
out of the womb dead as ‘The start of his Legal personality is preceded by the end of his legal
personality’ and he lives for 48 hours after birth [Viability]
What is viability?
Viability is the act of living for 48 hours after birth. Also it refers to circumstances where a child
is dead before fulfilling the 48 hour mark if his death is not a constitutional deficiency (Internal
cause) but a result of accident (External cause).
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So What?
Being a ‘person’ in the Legal world, have its attributes. The basic ones are aimed at achieving the
right/duty issue.
1. RIGHT TO SUE/BE SUED- Exercising rights & duties in a full manner require the
assistance of the law, and one can get such only if he is entitled to plead/defend his cause
before a court of law.
2. RIGHT TO OWN and ADMINSTER PROPERTY in one’s own name( you own
certain property so does st.mary’s university college because both are persons)
3. RIGHT TO ENTER IN TO CONTRACTUAL TRANSACTIONS IN ONES
OWN NAME- In today’s world one cannot imagine the carrying of any task with out
contractual terms
LESSON 3
CONTRACTS
Why contracts?
The modern world carries out its functions through the mechanism of transaction to secure
whatever is demanded. Parties with interest of getting something or surrendering something
design a means to exchange what they need. Doing business based on the long standing ‘trust’
between parties start to fade as those who break their business words increase in number.
Economic chaos was the consequence that the need for having an organized way of carrying
business where in the interest of parties involved secured was proved inevitable. This gave rise to
the notion of law of contracts.
Contract is based on?
The founding principle for contracts was the ancient Latin culture of business named pact sunt
servanda which is similar to a man is bound by his words. There is no prior force that makes a
person to utter words of business. He does so on his own will. But the moment he promise to
involve in a business transaction his words bind him .The extent of binding nature of contractual
words was expressed further by the maxim a contract is as binding as a law. You all recall from
our introductory lesson that the characteristic feature of law that make it unique of social
obligation is that it binds all persons. As law do so, contracts also bind persons who conclude
them, hence have the effect of law.
Define contracts?
The Ethiopian contract law, found in the civil code defines contract as (ART 1675)
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‘A contract is an agreement whereby two or more persons as between themselves create,
vary or extinguish obligations of proprietary nature.’
Most literatures on contract have these definitional elements while giving a meaning to what a
contract is. A better understanding of the definition will result if we separately deal with all the
elements.
A. AGREEMENT….in our daily life we reach to an agreement on issues. What makes a
contract different is that it does not only require agreement rather additional elements
are there. Speaking of agreements parties to a contract reach at a common understanding
to carry business after passing through the traditional path of offer and acceptance. It is
the meeting of minds and the final say of ok that concludes a contract. We shall
recognize the possibility of existence of counter offers and unlimited debates backed by
offers until the point of acceptance is reached. A party who wants persons to enter in top
a contract invites others .As an offerer he may use oral communications, written
invitations, signs or conducts. The offeree can show his acceptance in a similar way. In
this line of discussion a yes in an oral contract or a signature in a written contract are
seals for the expression of acceptance.
It is a custom in the streets of Addis to see offers…..offer to sale of ‘tela’ offer to service of
phone…..which of the ways does this offers take?
It is also essential to see the case of silence when offer is made. Generally a parties silence to an
invitation to contract is regarded as rejection of the offer unless there is a preexisting business
relation between the parties. By making silence a rejection then the law is speaking loud towards
the notion of making acceptance as clear as possible free of any doubt in the transaction as to the
parties agreement being secured.
B. TWO OR MORE PERSONS (parties to a contract)

A contract needs a minimum of two persons note from lesson two that by person we are
referring to both natural and artificial (persons) the idea of contracting with one self is
not recognized in the Ethiopian contract law. The maximum number of persons is not
stated in the law leading us to conclude whatever the number so long as it starts with
two. The minimum requirement seems not to be respected in situations where an agent
concludes a contract on behalf of his principal with himself. This act was referred as
contracting with oneself in the Ethiopian agency law and is treated valid if the principal
does not object. The title seems contradicting the element we are dealing with an
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amendment is advised. Still the assumption in such scenario is the existence of two
individuals though physically the deal is closed by a single person. The definition also
limits the scope of the agreement by the word as between them. In principle contracts
bind only signing parties. The whole world is excluded from being part and parcel of the
rights emanating or duties resulting of the transaction.
C. OBLIGATION OF PROPRIETARY NATURE, CREATE/VARY/EXTINGUISH…….

Social duties we owe towards the community called as social contracts have obligations
that put up on each of us. What makes then a contractual obligation of the law is the fact
that in contracts the acclaimed quid pro quo/give and take notion prevails. It is with the
assumption that monetary value will reside on both contracting parties a contract is
made. The only type of contract, where obligation is only on one party and the
beneficiary is a single party is the case of contract of donation, which we generally refer
as gratuitous contracts. All in all persons enter in to contractual transactions with an
anticipation that they will benefit from a deal. This benefit is a value with possibility of
being turned to monetary terms (contracts for consideration.) Obligations may be
created for the first time (creation of contract) or can be modified from the earlier
phase in to a new obligation (variation of contract) or even cease to exist for ever.
(Extinguishment of contract)
 e.g. Yonas registers in St.Mary’s University, business faculty……create
 The university increases the monthly fee for extension accounting students to
birr400 starting coming yekatit……vary
 Abera leaves the house he rented from debele after paying 3 month due bills………
extinguish.
LESSON 3(2)
What are the essential elements of a valid contract?
If we merely stick to the definition of contracts we run the danger of considering ‘Unlawful
Contracts’ as valid. A contract that is accepted in the eye of the law need to fulfill certain
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cumulative essential elements with the absence of them, we will be having a mere draft agreed
than a valid contract Legal scholars term such invalid contracts as <void abinitio>, meaning
with out no effect /Non existence.
The Elements are?
a) CONSENT b) CAPACITY
c) OBJECT d) FORM
What is Consent?
Consent is a mechanism of expressing the free-will of parties to enter and abide by a
contractual term. In lesson 3 you recall we define contract as an agreement. Thus, it is consent
that secures the parties agreement. The law looks for a full and free consent in order to deem
an agreement valid.
Free and full consent
Parties yes or signature in to the contract shall be secured free from external influence. If
consent is secured contrary to the parties free-will then it is treated invalid with an effect of
invalidating (making it not acceptable before law) the contract.
When do we say consent, not ‘free’ and ‘full” or defective?
If it is secured via (vices of consent)
a. Mistake b. Fraud c. Duress
The parties declaration of intention to involve in a contractual transition, if secured through
the aforementioned means then we have an invalid consent resulting at an invalid contract.
Mistake and fraud by their nature depict the fact that contracting parties (a party to contract)
wouldn’t agree to the deal if he/she was aware of the actual fact. It is then presumable that there
exists a hidden truth from the knowledge of the party, which if exposed he/she wouldn’t agree at
all.
Difference between mistake and fraud
Mistake is in the terms of ‘honest practice’ where in contracting parties in no way made one
another to believe /hold the happening or existence of a certain fact. One can mistake the identity
of the contracting party/subject matter of the contract and such is treated by law as decisive and
fundamental as it relates with the essence of the contract itself. Speaking of fraud, the party in the
deal has resorted to a fraudulent act and practice with a view of providing one to give consent to a
deal. Comparing mistake from fraud the later is more of a deceptive nature. The law requires
mistake to be fundamental and decisive (i.e. should affect the essence of the contract)
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Say mistake /fraud?
- Kebede shows a photo of a brand new Mercedes to Abera that Abera signs a sales
contract while the real Mercedes is not the one in the photo?
- Shalom attaches a forged degree in his work resume while he applies for a job and was
hired?
- Deriba contracts with ‘Ham Décor’ for his marriage celebration program, thinking
‘OUDU’ is the owner of ‘Ham Décor’. Ham Décor has not in any way show ’OUDU’ as
owner/manager?
- A conservative Orthodox Christian orders a lunch in a hotel saying ‘Any fasting food’?
and the waiter brings ‘fish’. The waiter is an Orthodox who believes ‘fish’ is a fasting
food?
And duress is
Duress is a force applied on the contracting party, his ascendants/ descendant’s life, liberity or
property. If consent is secured through the use of force one cannot honestly and logically state it
is valid. Abscent the force it would be impossible to imagine the party agreeing to the deal. The
law requires duress to be ‘serious’ and ‘imminent’. Serious is indicatory of the fact ‘how grave
shall be the force’ while immanency answers the ‘time’ question in the ability to go against/resist
the duress. These yardsticks exist in order to prevent parties from rushing to invalidate a contract
for this and that simple reason under the disguise of duress.
Reverential fear- to the question whether The case of fear to higher authority like
Boss, military officer, priest with absence of clear duress, but by mere anticipation of danger
amounts to a ground that leads to invalidate a contract the law responds negatively.
What is Object?
The object is the core element /subject matter of the contract. It is the ‘what do parties agree to
do in the contract. You recall also that we define contract in lesson1, as obligation. Object then
refers to this obligation. Putting ‘object’ as an essential element of contract is meant to say,
though parties have a freedom of contract in that they can agree on a matter they want without
interference from any third party, the law orders the object to fulfill certain criteria.
The limitation on ’freedom of contract’ requires?
Object to be
a) Lawful- one which are not prohibited by law from doing. This is easy to describe as it
only needs the task of knowing what is legal and illegal. E.g. do not conclude a contract
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whose object is robbing a bank, because the act of robbery (object of the contract) is
unlawful, thus invalid.
b) Possible- The object of the contract shall not be one which is absolutely impossible in
the realm of human reality. Parties should agree on a matter that is possible of being
performed, what ever the level of difficulty in achieving it is. If a person agrees to
transport you to the U.S.A with out using any means of transportation and you pay birrs
for same, as the object of the contract is virtually impossible the contract is invalid.
c) Defined- defined means clear. The object of the contract shall be put in clear
language/terms showing the obligation of parties in detail. If one fails to grasp what
parties are to do/what the contract is about, and then we say the contract lacks object
clarity, hence is not defined. The object of a contract can express it self as.
a. Obligation of give (Contract of sale)
b. Obligation to do (contract of service)
c. Obligation not to do [contract of sale/service]
On all these three scenarios one should be in a position to identify what parties are to perform
with out difficulty.
d) Moral- The most controversial requirement is that saying ’objects of contracts shall be moral’
defining morality is difficult as the term of right and wrong is subjective. Yet common
elements of morality can be found in a society. Well in that case, for Ethiopian society a
contract to get sexual pleasure with a prostitute is an invalid contract because the subject
matter is ‘immoral?’
Is it immoral for all?
Here are list of objects of contracts, list them as lawful/possible/ defined/moral or

unlawful/impossible/undefined/immoral.
- Contract to let a car for 2 weeks

- Contract to let a car 2 weeks to perform a record breaking speed race
- Contract not to marry until death
- Contract to kill Mr. Akalu.
- Contract to sale an ox, which is of age 3-5 or 5-7 or 7-9, from Bonga or Harara, of age 3-
6, or big sheep.
What is Form?
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Form is the manner/structure in which the contract needs to be made: It answers the question
whether a contract needs to be made in a special form to be valid. As to the Ethiopian laws of
contract we’ve three types of forms.
- No special form- unless the law required a special form, contracts between parties can
be made in any form parties want (e.g. oral contracts are accepted in the eyes of law as
valid.)
- Special form- The law under circumstances orders certain stipulation to consider
contracts with valid form. In these instances if parties fail to adhere to the required forms
then the contract is invalid.
o Any contracts with special form?
A. Contracts involving any rights of immovable property written + made in a court of
law/notary + witness (2)
B. Contracts made with a public administration/government organ/ written + witness (2)
- Written + witness (2)
C. Long term contracts (insurance/guarantee---)
- Agreed form- parties may agree to have a certain form to deem their contract valid. These
are not requirements of the law but parties themselves that if not fulfilled, we categories the
contract as mere draft.
Lesson 3(3)
What is capacity?
Capacity is the ability to perform Juridical (day to day) functions in the eye of the law. A
person (All persons) is presumed capable of performing juridical functions. In relation to our
topic, capacity refers to the ability of parties to enter in to a valid contract. You recall that in
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lesson 1 we’ve established ‘birth’ for human beings entitles them with rights. Yet the
entitlement/holding of rights is a different concept form the exercising of rights?
Difference between ‘Holding’ and ‘exercising’ of rights
Holding of rights merely refers to the fact that a person is with a specific rights. It ensures
persons that all recognized rights by law are presumed to reside on them. Holders of rights
have the rights. The issue here is but unless the so recognized rights are put into effect and
there by bring benefit of some sort to the owner’s Mere holding will be meaningless.
Exercising of rights refer to the fact of effecting rights to ones benefit. In contract law terms,
the right to enter into contractual obligations by ones own name is the holding recognized to
all persons, and when persons actually enter into contract and create obligations, then we
claim the notion of exercising rights.
Is Incapacity Exclusion from rights?

When the law declared certain group of individuals incapable (unable to perform contractual
acts, and it found performing such invalid) it is not with a spirit of excluding them from their
rights. Rather juridical functions through other channels who are duty bound to preserve the
interest of the incapable person is envisaged.
Reasons of Incapacity are?
General incapacity
- age
- Mental condition
- Legal imprisonment
Special incapacity
- Nationality
Age refers to?
- A person of either sex who didn’t attain the full age of 18 (MINOR) is incapable to
perform contractual transaction. The incapacity by reason of age comes to an end when
one attains the age of majority (18<). The law has established the institute of
guardianship and Tutors to protect minor’s interests. Thus naturally the husband and
wife in a working marriage or ascendants & descendants take the function of
guardian/Tutor. It is then these organs that one needs to contact to contract with the
wealth of a minor.
Any Exceptions
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The minor is allowed to perform a contract involving an every day act of life whose gross amount
does not exceed 100 Ethiopian birr. The passing through Tutors/Guardian is not necessary. Also
in situations where the major has honestly belief the minor as a person of contractual age (not
because the minor utters it, but rather on some more substantial facts) and didn’t in any way take
advantage of the minor the contract remains as though made by a capable person. The effect of
validating the contract is unlike the normal case of performance, which we would see in future
lessons, Assuming a claim by the minor, the good faith contracting major is required to restitute
all he posses as a result of the deal, while the minor with a similar obligation of restitution, will
be demanded to return what he have at hand only. (He may have nothing!!)
The third exception where in a contract by a minor is treated valid is the case of ‘Emancipation.’
Emancipation is a legal creation where in a minor demands the court to be considered as a person
of full capability (18 years) for a specific purpose. The claim in order to be presented, the minor
should at least attain the age of 15. Among different reasons why a person demands to be
considered as a major before he really becomes one may vary, but the law has mentioned
‘Marriage’ as one example. Keep in mind that emancipation tantamount to majority only for the
specific purpose it is rendered. For all others juridical purposes the person remains a minor.
Mental condition refers to
A person with mental disease is considered incapable by law. The minor was considered
incapable because of his age, that the act of weighing pros and cons of an action cannot fully be
made in the right way with young age. Similarly, with a mental condition labeled abnormal by
medical science, the weighing of one’s action’s consequence is unlikely to prove correct. The
law of persons dealing with this topic refers to persons of mental condition as ‘Insane’ and
defines them as.
“ An insane person is one who, as a consequence of his being insufficiently developed or as
consequence of a mental disease or of his senility, is not capable to understand the importance of
his actions.”
Major points
 Failure to understand consequence of their action
 as a result of - insufficient mental development (from birth)
 mental disease (after age)
 senility (old age)
Who decides insanity?
Appropriate medical experts need to verify the claim that one is insane, therefore incapable.
The law refers them as ‘Notoriously Insane’ and stress on the need that treatment in a mental
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institution is an essential element in proving one’s insanity before the law. Any interested person
who claims to be concerned of the condition of the insane person needs to approach to the court
and explain same. The court can enter a judgment barring the effect of any juridical transaction
made with such person. As in the case of minors, the tutor/Guardian carries out the task of the
insane. The judgment entered to such effect is referred to as a judicial interdiction.
The Effect of a contract
A contract performed by a judicially interdicted person at the time when he was with such a
condition is invalid. But the guardian/Tutor/ The interdicted person himself shall rise to
invalidate the contract.
Who are the infirm?
When found appropriate the law considers certain set of individuals as insane. The effect being
the contract will be invalid, as the infirm for the specific case at hand will be considered
incapable. All infirm are not insane. It is required that the infirm himself need to request the
invalidation. What he needs to prove is the fact that his consent is presumed to be null because at
the moment of concluding contract he does not understand the consequence of his action.
These persons are
- Drunkards
- Habitually intoxicated
- Deaf/mute/blind
- Prodigals (those who waste money)
Legal imprisonment refers to?
When a person is sentenced criminally he is deemed to be legally interdicted and his rights will
be limited. Though assuming the issue of guardian ship in these regard is difficult a person in bars
need to have a tutor who runs his monetary matters. As his liberty is curtailed it is presumed he is
not in a position to make a fair deal. A contract made with such person is eligible for case of
invalidation if so requested by him or his tutor.
And the end of incapacity is?

Minors…attaining majority.
Insane…..when judicial interdiction is with drawn (returning to normal mental condition)
Prisoners……finishing sentence (being released)
Qn. Why is the case of nationality or the fact of making foreign nationals incapable of
performing certain legal tasks (liking buying shares or owning banks or involving in radio
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broadcast service) treated as a special incapacity? (Note that all the discussed are refered as
general incapacities.)
LESSON 3(4)
What is the effect of a lawful contract?
A contract performed lawfully is binding and is treated as if it is law. One of the defining
elements of law, as can be seen from the introductory lesson is that it binds all subjects and
transgression is with consequence. Same holds good for contracts. To start with there is no
single force which oblige parties to create a contractual relation. Once they conclude but there is
no point of return. A contract fulfilling the validity requirements is now faced with the fate of
‘performance’.
What is performance of contract?
Performance is the fulfillment of parties’ obligation in a contract. The whole idea in a contractual
transaction is in that parties will see to it what they promise to do will be kept to the satisfaction
of mutual interest. Had it not been for the concept of performance the whole idea of contract will
be abortive. The law, whatever it takes, is always on the side of making sure that contracts come
in to effect and a smooth flow of transaction is kept in the world of business. Performance at all
cost is the logo.
Who/to whom shall performance be made?
If what is to perform is the obligation of parties in a contract then the answer for the question
who/ to whom shall it be made is easy, as both contracting parties are expected to be with a
contractual obligation. The object of a certain contractual term is expected to put a party both in
the position of a creditor (one who is with a right) and a debtor (one who is in a duty towards
performing). Let us now take a contract of sales of car made between Anwar and Mikael. The
party’s obligation can be summed up in the following manner
Parties rights Parties duties Position

Anwar To be paid To Transfer car PR=Cr PD=Dr
Mikael To own car(posses) To pay sum PR=Cr PD=Dr
The table shows the fact that both Anwar & Mikael are at the position of being considered
creditors and Debtors considering differing obligations. If one of the parties has performed what
is expected of him before the other he will be in a position of creditor and can demand
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performance. The one who didn’t perform will be labeled as a debtor. The Ethiopian laws of
contract explicitly answers ‘who shall perform’ question by putting ‘the Debtor’. From the
earlier explanation, the word debtor resides on both Anwar & Mikael and they are expected to
perform on their respective duties. To whom shall performance be made then, the law answers to
the creditor? Thus both Anwars & Mikael can demand the performance of a contract being
creditors on respective rights.
The issue of personal performance
The contracting parties can perform their duties through persons they authorize. The reason for
allowing such is presumed to be the laws concern. The law of contracts is not much concerned
on the personality of the performer. Rather it emphasizes much on the obligation being
performed. In the first contract lesson we’ve talked of ‘personal effect of contract’ where we
state contact bind only parties. The stand of allowing performance to be made by third parties,
even out of the typical parties, creditor and debtor does not go against that principle being the one
who are obliged to perform in place of the creditor or debtor are willing agents than unknown
strangers.
Any Exception ?
If the performance is agreed to be carried out by parties personally in the contract, then
representative performance will not count. Also under certain special circumstances the personal
performance will prove to be too essential. Take for instance a person who contracted the service
of a stand-up comedy entertainment with comedian Keebebew Geda. On the day of performance
Kebebew may send another comedian to tell his jokes. Yet the nature of the contract mandates
the original debtor to personally perform what he agrees. The essentiality of performance by the
debtor himself, examined from the creditors interest forces a contract to be performed personally
by the debtor.
What to perform
The simple response would be ‘what is agreed? Parties are required to perform to the right
creditor what they have promised to do in the contract. It is the contract that verifies the
obligation. The shift in thinking comes with the development of certain contractual thoughts.
What originally presides was the idea which purports parties to perform exactly what they agree.
No more no less. [PERFECT SALE] some claim in the real world exact performance can’t be
imaginable. Therefore giving room for tolerance of some minor defects is inevitable (RULE OF
DEMINUS). Considering performance even in situations where in the party fail to deliver what
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he exactly promises, such does not negatively affect the essence of the contract or does not
change the benefit that is due from the contract is the idea enshned in the rule of deminus. The
Ethiopian law of contracts recognized same in the contracts of fungible goods. The law states a
claim that what is delivered is not the exact of what is agreed in qualigy or quantity is not a valid
ground to invalidate a contract or claim non-performance. For contracts involving all other types
of goods or services, it seems then ‘perfect tender sale’ rule applies.
Any indicator of such fact

The law of contracts considers both partial performance and increased performance as non-
performance. If a party payment is one which is both below/above agreed. It is treated
immediately as a non-performance. The fact that what a party delivers is of high quality and
quantity does not change the existence of non-performance. The law is standing for the pact they
originally agreed and also fears the chaos which would result with an increase in payment and
consequent troubles. One can not argue as if he has duly performed by bringing a higher quality
than found in the contract.
Say Non-performance or not
- Lemma brought class A textile from Germany to Abera (the contract requires Lemma to
bring textile from Germany)
- Lemma brought 50 dozen of glasses from Turkey (the contract requires Lemma to deliver
50 dozen of glasses from Italy, made of marble)
- Lemma brought unwashed coffee of 100 tone from Jimma (the contract reads Lemma
need to deliver 100 tones of Jimma washed coffee)
Where to perform?
Place of performance is essential to make the contract reach its desired end goal. You recall from
previous lesson on essential elements of a contract that the object (obligation of parties) is needed
to be defined object being defined/ clear stretches to the extent of staring the place and time of
performance such statement shall be one with a no blurry and no doubt tone. Parties/ a stranger
need to be in a position of identifying the location where the deal will seal, thus obligation extinct
with no hard ship.
Place of performance- where parties agree?
If they don’t agree/ Difficulty to know the place in the contract then
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- Normal Residence (place of business) of the debtor
Why the debtor?
In contractual terms where the duty to deliver a distinct thing (a thing easy to locate both because
of it’s physical) felt presence and that it is not mixed with other items— (a Tractor standing at
semer Garage, in Dire Dawa Kebele 08 H. No. 604) then the place of delivery unless agreed other
wise is the place the thing is found at time of making the contract (singing).
When to perform?
If the contract is clear enough to establish the time of performance one needs to stick to such. But
in circumstances involving no clarity as to stipulate date /parties fail to state delivery/performance
date, the contract is expected to be done forth with any one party requiring so. The punishment
thus the law has designed for parties are to speed the performance date for the creditor. It is here
noted also that a party will require performance either simultaneously or only after he performs as
in the contractual terms. Then the rule which made performance immediately when a party
requires has the effect of forcing the demanding party to perform his duties too, at the same time.
Then it means a performance to the wrong creditor of not what agreed in the contract
(higher/lower) made at the wrong place made at the wrong time is treated by law as a Non-
performance, no matter the condition the party is at.
Which places/ time of performance is correct /incorrect?

- At piazza, 6.00at GMT.
- At National theater, 6 Kilo oblisk, 12.30 local time
- At Getv commercial center, 4th floor, Room, No. 62,morning 3.00am., Feb 10,2009.
- At St. George Cathedral, when the celebration of St. George is held, afternoon.
- On Labour Day of the year 2010 or before Valentine’s Day of the year 2010, in my shop.
LESSON 3(5)
What if parties to a contract fail to perform?
The whole idea behind concluding a contract is to see to it that it is performed. As stated in the
previous lesson, the obligation parties promise to execute need to be made to the right person (Cr)
by the right person (Dr), in the right place and time, of the agreed amount/quality/ quantity or the
like. In situations where one such element is not properly done then we say we’ve Non-
performance. Non-performance is the failure of contracting parties from performing (Executing)
their obligation in a contract.
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Any remedies
A party affected by non-performance has remedies to claim. The law of contracts strength will be
examined, primarily from the perspective, whether it is strong enough to provide solutions for
problems and protect the right of parties who have performed but happen to meet with the fate of
not getting reciprocal benefit. The available remedies in the Ethiopian contract law are namely
specific performance, cancellation and Damages.
What is specific performance?
Specific performance is actually performance. What is unique is the party who was expected to
perform of his free-will has failed to do so that now it is the court that forces him to meet his
obligations. Specific performance is also referred as forced performance (as the court forces him
to carry out his duties.) In order to require specific performance it shall be in the interest of the
party asking meaning he can’t resort to other means’s of fulfilling obligation like purchase in
replacement or compensatory sale. If the person requiring specific performance can get
performance from else where such will be calculated from the debtor cost and the wait to ask
performance from the debtor himself is considered unreasonable. The other requirement is it
shall not be against the personal liberty of the debtor. By ordering specific performance if the
debtor is put in a position of liberty infringement or freedom reduction’ the ordering shall not be
made.
Which, among the list, go against ‘personal Liberty?’

- a forced performance to operate on a patient
- forced performance to sing in a concert
- Specific performance to dig a hole
- Specific performance to deliver 100 kgs of Teff.
And Notice is?

Before a party takes any move to initiate a remedy for non-performance the law obliges him to
notify the defaulting party (one who fail to perform) of the fact that his act has put him in
inconvience and he needs him to fulfill his obligation with in the period he specifies. The notice
is a prerequisite to bring a non-performance claim. This is done with a belief that all defaulting
parties are not necessarily at fault and if given an opportunity they will correct their failure of
performance.
Any circumstance where notice not needed?
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a) If parties agree to directly claim remedies to non-performance with out the need of
notification. (keep in mind that notice comes to picture only after the obligation is
due[After Due Date]
b) If parties have agreed to refrain from a certain act and this being the contracts essence,
the obligation is not performed. (note that by non-performance the party has damaged
what parties agree for and it can’t be rectified in any manner)
c) In circumstances where the debtor has clearly show he willn’t be abided by the contract,
the need of notification will prove unnecessary.
d) If also the debtor assumes to perform in a fixed period and performance after such
period is worthless to the party, notice is not necessary. Take the example of a contract
to deliver a cake for a marriage celebration on Miazia 4/2002. If the debtor fails to
deliver the cake, there is no need on the side of the contracting party to notice, as the
purpose of default notice is primarily anticipating performance.
Cancellation Vs Invalidation
Invalidation of a contract is as a reason of lack of basic elements of a contract (consent,
object, form, capacity). The effect is deeming parties ‘contract’ as though it wasn’t made and
does not exists. Cancellation of a contract in the other hand has all to do with Non-
performance. The effect of both invalidation and cancellation is reinstating parties to their
previous position (if possible). For such a reason though one can claim the effect for both as
one and same, the real factor that causes cancellation & Invalidation varies.
Who can cancel contract?
As a remedy for non performance, a party can move a claim to a court when the other party
fail/ adequately and fully fails to perform the obligation as agreed. The court in such instance
doesn’t normally rush to order cancellation. Rather it may give a period of grace not
exceeding six months. This is done for reasons that the debtor may perform it given
opportunity. Keep in mind that this is optional in a sense parties may avoid it by agreeing in
their contract or even the court may order cancellation. In ordering cancellation the court is
expected to take into account parties interest and requirements of good faith. It is only the
existence of a fundamental provision breach that cancellation is ordered. The parties are not
allowed to claim cancellations for every little reason they think are at a disadvantageous
position. If such was allowed claim for non-performance would overwhelmingly crowd our
courts and in effect the rule in contracts preaching for ‘Enforcement’ would be came an
exception.
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Comment whether the following contract should be cancelled?
NAM PLC is a construction company which concludes a contract for the construction of
raods in Debark Woreda with the Amhara region Road and Transport Authority. The due
date for the Authority to receive a complete road was Tir 13/2005. On the due date Nam Plc.
fail to finish the road construction. As there was an agreement to claim remedies with out
notice, the Authority moves the case to the court and demand cancellation of the contract.
Facts
- NAM Plc. hires 300 workers
- The only viable work NAM Plc involved currently is the road project.
- The Amhara region Road & Transport Authority is no rush in seeing the completion of
the project
- Debark have a good, natural transport friendly land escape
Would you order cancellation?
Can a party unilaterally cancel a contract?
Apart form court (Judicial) cancellation a party can cancel a contract if
a) a provision to do such exists in the contract and the conditions to cancel are all met
b) If a party fail to perform after award of grace period/ No need of notice is stipulated.
c) Where the performance by the other party has proved impossible (is hindered).
Imagine an athlete who contracts to run in an event and before the event is met with a
car crush putting him in paralyze.
d) Anticipatory breach of contract (a party clearly informs that he won’t perform)
And Damages is?
For damage that arises as a result of non-performance, a party can ask damages (Monetary
Compensation.) This can be done apart from or on top of the earlier discussed two remedies.
Damages are not related with fault of the defaulting party. Even in situations where the later was
with out personal fault, the mere fact that he didn’t perform puts him to pay damages. In principle
a party must only get the normal amount of damage the non-performance has caused him (actual
damage)
Any Exceptions
The only case a party escapes payment of damages is by proving the reason for non-performance
as ‘force majeure.’ Artricle 1792 of the Ethiopian contract law define force majeure as
‘Force Majeure results from an occurrence which the debtor could normally not foresee and
which prevents him absolutely from performing his obligation’
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- Unforeseeably (can’t be predicted as a cause of non-performance by the debtor)
- Insurmountable (Though predicted, can’t be changed in any way from hindering
performance)
Some cases of force majeure listed explicitly by law are:
- Official prohibition preventing performance
- Natural catastrophe (earth quake, lightening, flood)
- War
- Death(accident) illness of the debtor
Say for instance at the time Haiti was hit by the deadly earthquake, you are dealing
with a Haitian plastic company for delivery of 500 packs of plastic shoes for the Month
after Easter (Ethiopian calander, Miazia) The Haitian Company can’t reasonably be
expected to deliver because the country has turned to status of Sodom & Gomorra, with a
death toll of more than 200,000 as a result of Earth quake. If the case is brought to court
and you claim Damages, so long as the company proves, Non-performance is linked with
the quake; it will be released from paying damages.
- The law also lists some factors which in their face may look as though they qualify as
force majeure, but which are not. As such with the absence of clear agreement to that
effect the following are not cases of force majeure.
- Strike/ LOCK OUT
- Increase or decrease of price of raw materials
The remedies for non performance of a contract are then SPECEFIC PERFORMANCE,
CANCELLATION, and AND DAMAGES.
Lesson 3(6)
Extinction of contracts
The concept of extinction of contracts talks of the notion where the obligation of parties comes to
end.
Contracts as described in the definition part are meant to end at a certain time. There is no
concept of perpetual obligation. At the end the party’s obligation lasts up on either performance
or non performance and its subsequent effect.
Here are some of the grounds stated by the Ethiopian contract law as causes of extinction of
obligation arising from contract, in essence the extinction of the contract it self
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1. An obligation shall be extinguished where it is performed in accordance with the contract.
This is the normal mechanism to end a contractual transaction. Parties enter in to a contract
with the prior assumption that it will be performed. Had they beforehand can forecast the
fact that one is not willing to perform; they will not be motivated to bind themselves.
Accordingly PERFORMANCE as defined in the previous lessons is one natural way to
extinguish contractual obligation.
2. An obligation shall be extinguished where the contract in which it is provided is invalidated
or cancelled. We have already stated the distinction between the terms cancellation and
invalidation in relation to contracts. Both speak of the idea where an obligation in a contract
will not see the light of performance either for lack of a valid element in the process of
establishing/creating the contract or the party has failed to be bound by his words and terms
of the contract once a valid contract is created. In both these cases even though the effect of
extinguishing the obligation vary(note that in case of invalidation, the law does not
recognize the existence of valid contract or contractual obligation so what will come to an
end is in a way what has not validly been created in the first place, while in case of
cancellation a validly created and legally recognized obligation for reason of non
performance comes to an end) the contract extinguishes so does the respective obligation
parties have planned to create or created.
3. An obligation shall be extinguished where the parties or one of them enforce a provision
made in the contract for the termination of the contract. Termination as a reason of contract
extinction is different from invalidation and cancellation for it is voluntary. Parties at the
time of contract creation will insert a term or agree to the effect that on the happening of a
certain fact/event one or both will be entitled to a termination right and all subsequent rights
that follow termination. Let us take this example, Tigist law firm is a known company that
provides legal service on company related matters. Adika tour and travels PLC entered in to
a contract of service with the firm and expects to get among other litigation and document
drafting tasks from the firm. Among the various contents in the contract a clear term resides
which reads
“if Tigist law firm represents a competitive company working on a similar business as
Adika, the later has a right to terminate the contract” and the firm represent Shema tour and
travel Share company, it follows that per to terms of the contract Adika can terminate the
relation and accordingly end the contract with all the obligations entailed. Note that the
effect of termination will also be stated in the contract in such scenarios, in the absence of
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which we will look in to the civil codes effect of termination of contract that the contract
shall no longer be performed and there will be no retrospective effect.
4. Where the creditor informs the debtor that he regards him as released, the obligation shall be
extinguished. This is referred as the case of remission. In a situation where the creditor is
willing enough to let go a debt and is no longer willingly looks for the debtor for
performance there is no logic in forcing the debtor for the execution of his obligation.
Although we will not think of a scenario where by a released debtor insists in performance
the law assumes the case and claims, if the debtor is not willing enough to be remitted we
will assume the obligation to prevail and no longer speak of the issue of extinction of
contract and contractual obligation for the refusal has breath life to the obligation.
5. An obligation shall be extinguished where the parties agree to substitute therefor a new
obligation which differs from the original one on account of its object or nature. The legal
term employed to tell this idea is NOVATION. ‘To Novate’ is to create or bring new in
place of the old. Novation does not totally extinct an obligation unlike the previous grounds
of extinction of obligation, it rather merely replace former contract with a new one. With the
replacement, as the former contract and the perspective obligation it creates is extinguished
we see it as one ground of contract end. Novation shall not occur unless the parties show the
unequivocal intention to extinguish the original obligation.
6. Where two persons owe debts to one another set off shall occur and the obligations of both
persons shall be extinguished. In a set off the claim by the creditor to a performance of terms
of a contract will get a counter claim by the debtor. As such in place of performing his duty
as the debtor has also claimed another obligation from the creditor which will make him a
creditor too we start speaking of to set off the obligations with one another thereby bringing
the obligation of both parties to an end. For a valid setoff to happen both the obligations
must be of money debt or relate to a certain quantity of fungible things which is of similar in
species. Also both the debts must be liquidated and due. Let us set an example, Gash
Abrham has borrowed Abera 20,000 Ethiopian Birrs via a loan contract. In a different Abera
has a contractual duty to deliver 1000 liters of palm oil to gash Abera. The due date for both
the contracts is Miazia 3,2005. In this case if the cost of 1000 liters of palm oil equals 20,000
birrs the debt of both parties can extinguish and there can no longer be an obligation.
7. Obligation can also extinguish if the parties position of creditor and debtor merges on one
person. if this happens it follows that both the one who perform and expects performance
become one person and the idea of a contract as an agreement between two or more persons
can no longer apply. This situation is referred as merger. Assume a son of ato agafari has
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borrowed a sum of 400,000 birrs to be repaid in 2 years period of time. If ato agafari dies
and make his son his heir of all property a merger has happened as both the creditor and
debtor status resides on one person, the son. Accordingly there is no more the obligation of
repaying the 400,000 birr debt as the contract has died of merger.
8. Rights have life span. Any right that one can ask in a court of law emanating from a
contractual relation must be brought within 10 years when performance is due. This is what
we call the general period of limitation for contracts. Limitation is then one ground to bring
a contractual transaction to an end. There are other lesser periods of limitation where if a
right holder fails to claim his due arising out of contract the law/court presumes as if the
debtor is released and is no more with obligation of performing any right.
LESSON 4
CONTRACT OF SALE
In lesson three we have already established rules in connection with contracts. Those rules are
said to be of general contract nature for there was no mention of a specific kind of contract.
Although the rules in principle apply to all contracts generally the special nature of the contract
may also call for the application of additional rules. Lesson 4 and 5 will be devoted to familiarize
you with examples of special contracts, namely contract of sales and contract of agency.
What is contract of sale?
Traditionally or common sense tells us that sales is an act of buying and selling or an agreement
to that effect. The Ethiopian civil code defines sale under article 2266 with some additional
element as
‘A contract of sale is a contract whereby one of the parties, the seller, undertakes to deliver a
thing and transfer its ownership to another party, the buyer, in consideration of a price
expressed in money which the buyer undertakes to pay him.’
Elements of the definition are
a. Contract- if a sales contract is a contract it follows that the discussion we had on lesson
3 applies if not expressly excluded. Accordingly a minor or a judicially interdicted person
cannot make a valid contract of sale as it is the case for a sales contract made by securing
consent of one of the parties via fraud or duress.
b. Parties- the parties to a contract we named debtor and creditor in lesson 3 are now
clearly designated by names as buyer and seller
c. Undertake- the fact that the seller undertakes or enters in to a contract to do something
itself is a contract of sale. Unlike some countries that differentiate between agreement of
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sale and sales contract the Ethiopian law deems the undertaking of obligations by parties
is a ground for the existent of valid sales contract.
d. Object- the undertaking or object or what is to be performed by the parties in a sales
contract is stated as
Delivery of a thing / transfer of ownership of a thing/ payment of price in money.
Delivery of a Thing
This are stated as obligation of parties in a sales contract. The primary responsible of the seller is
delivery of a thing. Let me highlight some important points about delivery and thing.
Delivery is an act of transferring the thing to the buyer. The item of sale (say a mobile phone)
and accessories essential to use the thing (the charger or ear phone for a mobile phone) must be
put under the control of the buyer. For this to happen it is expected that the seller must make sure
the thing after sale is in the hands and control of the buyer. The law also assumes that delivery
may express itself in different ways. For instance, if a document representing the item of sale and
without which transfer of the thing is not possible or legal is in the hands of the buyer it is
presumed delivery has been made. This is so because the document is deemed as the thing and
the one who holds the document is deemed to posses or hold the thing. This is called
documentary delivery, which does not require the actual transfer of item of sale but the document
that entitles a person to the item or thing of sale. We also have another type of indirect delivery
by the name constructive delivery. This happens when the seller agrees to hold a thing of sales
contract on behalf of the buyer. If the thing is certain, belongs to a set generic species and
individualized we say constructive delivery is made.
Thing is what the seller must deliver. We also refer it as the item of sale which the buyer wants to
buy. The Ethiopian civil code states the sales provisions found starting from article 2266 apply
only to movable things. There is a distinction of goods or things in the Ethiopian civil code as
movable and immovable. A movable thing is one that can move itself (animals) or be moved by
humans (chair, table, TV set) from place to place without losing its individual character or
without loss and damage to itself. An immovable thing is the opposite and cannot move from
place to place or an effort to do so will result in total loss or damage to the thing. Land and
building of any nature on the land is an example of immovable property. Thing in our discussion
is limited to only corporeal chattels or movable things. It does not mean that there is no law that
governs contract of sale of immovable things. It is not our scope to discuss that in here. The
choice of only looking to sale of movable things is motivated of two things. First most
transactions we involve in our day to day life are highly of those relating to the movable things.
Additionally all the rules discussed in here also apply to immovable properties with some
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restrictions and additions that knowing the rules for sale of movables is also knowing the rules for
immovable’s.
Therefore thing in the definition of sales contract relates to
a. existing movable thing
b. future movable thing (possible of making or producing at a certain future date)
c. another person’s movable thing if authorized to do so(lawful agent)
And it does not relate to
a. immovable thing(land and building)
b. stolen movable things(one cannot transact on a thing belonging to another )
c. public domain movables(a movable belonging to the public at large, e.g. Sebastopol at
meqdela)
d. currencies(birr, dollar, euro)
Transfer of Ownership of a thing
The main purpose of the buyer in sales transaction is to be the owner of the item of sale.
Ownership in law relating to a thing is called a wide right a person can exercise as it allows the
use, exploitation, enjoyment and disposal of the thing as one thinks fit so long as any restrictions
set by the law is respected. If one cannot establish an ownership right over a thing he cannot carry
out those stated actions on the thing. And the major way of acquiring ownership or becoming an
owner of a thing is the buying process called contract of sale. Donation, will, invention,
occupation, investement are also ways of becoming owners of a thing.
The ownership of a movable thing transfers from one person to another by delivering the thing to
the owner to be and transferring possession of the thing. So see the actual transfer of ownership
from the seller (former owner) to the buyer (new owner) the thing must be delivered to the buyer
and the buyer must take delivery.
Payment of price in money
This is the major duty or obligation of the buyer. The buyer becomes an owner of a thing by
paying some consideration. You recall from lesson 3 discussion that contract in principle creates
a quid pro quo(reciprocal obligation) relation. For what the seller perform his reward is a
consideration in form of price expressed in money from the buyer. This feature differentiates
sales contract from contract of barter where in thing is exchanged with thing of equivalent value.
In a contract of sale thing must exchange with money (any instrument that is used as money, like
cheque, promissory note, bill of exchange)
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The law establishes the essence of price expressed in money as of high value in sales contract by
claiming if price is not agreed there is no contract of sale. It is an essential element of sales
contract, it means.
Also in addition to payment it is the duty of the buyer to take delivery of the item of sale. If the
buyer fails to take delivery then no transfer of ownership happens meaning the basic essence of
concluding sales contract itself is defeated. That is why taking delivery is stated as one of the
buyer’s duty in a sales contract.
Lesson 4(2)
What is warranty?
When parties enter into contracts of sale it is with a sound belief that the end of their transaction
will rest at an additional asset. The buyer in these regard anticipates the ‘thing’ he becomes a
new owner of will work to his best interest. The assumption of Normal functioning of the item of
sale is with in a purview of reality. Yet things may go wrong. What one thought is a normal
functioning item may happen to be defective. Non-conformity of contractual terms may result.
The topic of warranty buds here. Earlier to the development of modern sales law the practice was
what the Latin lawyers refer as ‘Caveat Emptor’ and ‘Caveat Venditor’
What is --- Caveat Emptor?
A principle which preaches after delivery of an item of sale the risk of the thing totally transfers
to the buyer. It is therefore the duty of the buyer to examine the sold items functioning or the fact
that the delivered item is as agreed. What is expected is the normal functioning of the item. If the
buyer goes home with the satisfaction of delivery and later find the thing is defective/with non-
conformity, over--- he is doomed and the seller is with no more liability.
What is caveat Venditor?
This principle is a total contrary to the former one. In this case assumption has it that with the
growth of diversification and specialization in sales, the seller will be with more information
about the item he sells. He knows where it is made, what uses it render, what it costs, how much
he profits from the transaction and the like. This shifts the burden of liability in circumstances of
malfunction of sale item to the seller. It is the seller who is expected to cure any defects, who
ever the person at fault in relation to the sold item is.
And in short
Caveat Emptor- Let the buyer be ware
“ገዚ ሆይ ልብ በል”
Caveat Venditor--- Let the seller be ware
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“ሻጭ ሆይ ልብ በል”
And then
And comes the modern sales law thinking which fears to blame, any party for defect of sales
item, but to make liability shared between parties. Both the buyer & seller will be liable for a case
of defect & non conformity, given the law says so under specific scenarios.
Obligation to warranty sales item
In principle it is the obligation of the seller. Warranty is an affirmation given/need to be given to
a buyer of an item about the sale item. The words given/need to be given are reference to the
express and implied warranties.
Express warranty is
A promise /word/ assurance given to the buyer about sold item expressly. It may be orally or by
a written note.
Is an advertisement a warranty?
Imagine a lady who went to Kedir shop & buy a ‘shampoo’, which she just encounters via TV
advertisement. Among other Trade talk, the product was said to bring a miraculous change on
hair of all who use it. She in line with the usage order labeled on the shampoo used it in hope of
the told miraculous change. Her hair remains to be same old same. Can she claim the words of
the advertisement a warranty by the producer, in turn seller?
The moral of the case is?
What counts as an express warrants implied refers to?
Like it or not, by the mere fact of being a seller, the law oblige parties to make sure that the thing
they sell, belongs to them and give its normal function in the ordinary course of Trade. This is
what we call implied warranty. It is implied that a seller warrants against dispossession of the
sold item together with defect and nonconformity not occurring. The common business term
rendered for such legal warranty is
 WARRANTY OF TITLE
 WARRANTY OF MERCANTABLITY
The former answers the question of ownership while the latter deals with the issue whether the
sold item is capable of circulating in a normal trade set. An item is said to lack the quality of
merchantability if it cannot render its day to day and ordinary function. A TV is expected to be
with pictures as a radio needs to be with frequency. A buyer will not be part of a contract of sale
in the first place if he knows the fact that the item is defective.
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How can one verify merchantability?
The method of checking the working of an item varies as to the nature of sold item. The law can
never exhaustively state all techniques of testing. This was the reason why the law suggests
contracting parties to examine item of sale at time of delivery by the customary methods
predominant in the trade sector of that specific product. If the buyer overlooks a clear or obvious
defect and took delivery, later he can not claim warranty as he was expected to do that at earlier
stage of accepting delivery. For not complicated defects then the buyer takes risk of warranty.
How do you check whether the egg you bought is free from defect or not?
Certain things cannot be out rightly examined as to their working condition. For defects of hidden
nature the buyer is expected to claim warranty as soon as he comes to know them. This sort of
defects may require expert examining or time passage to exactly know the real status of the sold
item.
Note that the case of warranty is raised in situations where the defect is a natural case of the sold
item. If the non working or the malfunction results of the buyer’s involvement or fault no claim
of warranty can be raised.
Lesson 4(3)
Common obligations of buyers and sellers
Three issues are addressed common obligations of parties to a contract of sale. The obligations
are referred as common because they rest on both the parties on the happening of certain events.
If event x happens the obligation will be on the buyer side and if event y happens the obligation
will be on the side of the seller. Note that the obligation is similar; it is only the time or event that
makes it to be borne by one of the contracting parties. The three obligations that are common for
the buyer and seller in sales contract are
Preservation of item of sale, expense and risk of item of sale.
Preservation of item of sale- to preserve is to keep safe from any damage and loss. The item of
sale is the central element in a contract of sale with price. The law claims the buyer and seller
both have the duty to preserve the item of sale. The buyer must preserve the thing, if after
delivery he is of the opinion of raising warranty. Under the duty to warrant the seller is expected
to make right the defect and it is reasonable to ask the buyer to return the thing he thinks is of
defect before claiming warranty. And he can achieve this successfully only when he can preserve
the thing and return it to the seller as it is. The seller must also preserve the thing if the buyer is
late in taking delivery. In lesson 4 we have stated taking delivery was one of the buyer’s duties. If
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the buyer fails to do so the law forces the seller to preserve the thing for there is the assumption
that there is a reason for the buyer not does so and another chance must be provided. The expense
for preserving in both cases will be covered by the party who is in default. Assuming the cost of
preservation is so high the law allows the seller/buyer to sell or consign the thing and deposit the
sum for the other party’s interest.
Expense is the second common obligation of buyer and seller. The following points specify
which kind of expense must be covered by whom
 Expense of contract- buyers duty
 Expense of payment-buyers duty(unless the seller changes his place of business after the
contract)
 Expense of delivery-sellers duty
 Expense after delivery-buyers duty
 Custom duties-buyers duty( as it is added in the price)
 Expense of transport-by buyer if the thing is to be sent to another place than place of
delivery and by seller if delivery is carriage free.
Risk is a concept in law that talks about the responsibilities in relation to a thing. Normally the
owner of a thing has the risk of the thing in a sense that damage or loss to a thing will be
attributable to his control. The Latin phrase ‘Res Perit Domino’ is to mean risk follows the thing.
So risk is a common obligation as until delivery is made it remains with the seller and the
moment delivery is made it transfers to the buyer.
Performance and non performance in sales contract

As sales contract is a contract in its nature all the discussion we had on lesson regarding
performance and non performance equally apply here. Hence our emphasis in this part will be on
the unique aspects of sales contract.
The first remedy for non performance of a sales contract is forced performance. When the seller
fails to deliver the thing or where he deliver a thing of non conformity and defect or the buyer fail
to pay price in due time both parties may require a forced performance on the condition that they
have notified the failing party. The Ethiopian sales law does not have a condition of debtor’s
liberty unlike the general contract law because both the acts of delivery and payment cannot
possibly affect liberty like the case discussed in lesson .But the condition that forced
performance shall be in the particular interest of the creditor applies. The law believes if
purchase in replacement i.e. if the buyer can purchase the thing from other places and this has
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no inconvenience to him or is possible commercial practice or compensatory sale i.e. where the
seller can sell the thing to another buyer and that is customary practice in the trade forced
performance cannot be required.
The second remedy for non performance of a sales contract is cancellation of the contract. On top
of the discussion we had on general contract for cancellation the following special issues are
essential in discussing cancellation of sales contract. The reasons that entitle the buyer to request
for judicial cancellation are
1. Delay in delivery where the date fixed for delivery is compulsory
2. If seller deliver the thing at a different place and this constitute fundamental breach of
contract(note that if the problem can be rectified the court will not order cancellation)
3. If the whole ownership is not transferred to the buyer (defect of title).if the buyer knew of
such fact though the contract will not be cancelled.
4. If the buyer is disposed of the thing, partially or wholly.
5. If the thing is defective and the defect is major one which the buyer was not aware. (Note
that the awareness of facts by the buyer at time of sales is depriving him of his rights to
require cancellation from the court.)
The seller can ask for cancellation for reasons discussed in the general contract and failure of
price payment and delivery taking. The cancellation request may be of automatic nature on failure
of payment or a thing that requires prior notification and providing of reasonable period to pay as
agreed in their contract.
The law has also stated three grounds as common for both parties to request cancellation. Two of
the grounds, impossibility of performance by both sides and anticipatory breach of contract are
already discussed in general contracts. The whole purpose of having remedies for non
performance is making sure that a second chance of performing the contract is possible or the
person who performed is with redress. If a debtor has clearly communicated his stand of not
being interested to perform we shall directly go to cancellation without further ado. Same is true
if we are sure that in no way performance is possible like a case where the seller or the buyer
dies. In both this cases unilateral cancellation is valid. The final common ground is failure in
successive deliveries. It is the nature of some sales contracts that the transaction is not a onetime
deal. Parties will be required to perform on monthly, yearly, daily and other bases. The failure of
one party to perform leading to a fear by the other that such will continue on the coming
performance can entitle the party who performed his part to require cancellation.
The last remedy is damages. The point discussed in lesson 3(5) applies here too. A party is
entitled to get actual damages meaning the amount he loss by reason of non performance. The
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possibility of asking for greater damage is also there on the condition that the contract has
incorporated such. Normally the judicial and extra judicial expense sustained by a party will add
up on the calculation of damages. The law states interest must be calculated in damages of delay
in price.
Lesson 5
AGENCY
Article 2199 of the Ethiopian civil code defines agency as 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. From the definition the following major points can be grasped
a. Agency is a contract. If such is the case like the situation in sales contract all the
discussions held on lesson 3 apply here too with qualifications. For instance a minor
cannot make a valid agency so does a judicially interdicted and legally interdicted person
as all these fall in the incapable persons list to make valid contract. The Ethiopian law
recognizes the creation of agency through the functioning of the law too. That is why it
claims the sources of agency are the law and contract. For instance the parents are agents
of their children not because the children authorize them to do so through contract but by
the operation of the law. But this lesson is devoted to discuss the business world agency
arising out of contracts.
b. The two parties to an agency are the principal and the agent.
c. The major object of an agency is the agreement the agent made to the principal to
perform legally binding acts on his behalf. Different reasons can be mentioned for the
creation of agency as a legal institution. The era we live in today has necessitated the
existence of different persons who we trust on for the happening of various transactions.
Limited by time, energy, cash or space we may not be in a position of carrying out a
certain act while the act needs to be performed by us or is of essential importance to our
activity. What the law has designed as a remedy is agency where in we can authorize
another person to perform the act in our behalf. The authorization is referred by law as
power of attorney. The principal through contract will appoint an agent. The scope of the
agent’s power will also be specified in the contract enabling the agent to specifically
know what he can do on behalf of the principal. 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 and this idea is known as complete agency. It is based on this provision that
some argue the principal parties to an act done between the agent and third parties are
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actually the principal not the agent. For example if kebede authorizes sultan to enter in to
contracts in his name for the purchase of cement from Durban cement plc, although the
parties to the contract are sultan(the agent) and Durban cement plc(the third party)
because of the principle of complete agency all the acts done by sultan within the scope
of his power are deemed to be acts done by kebede(the principal) hence the real party to
the contract are kebede and Durban cement plc while the parties to the agency are sultan
and kebede. Last point here will be what the agent agrees to perform is a legally binding
or accepted act only. Agency for crime is not recognized by law.
The scope of power of the agent must clearly be stated. This will avoid future conflicts that may
arise between parties to the agency and third parties dealing with the agent. The general
presumption is that in the absence of clear stipulation in the contract we shall rely to the market
and see the trend. If for instance blen has authorized kalkidan about her house but the contract has
no specific provision we shall go to the tradition of house agency and try to figure out what acts
an agent authorized in housing can and cannot do. But this is a very subjective action and cannot
be taken as a standard. This seems the reason for the law to divide agency in to special and
general. A special agency authorizes the agent to carry out a particular act or certain particular
acts while general agency allows the agent to perform all the affairs of the principal.
If the agency is expressed in general terms the agent can only carry out acts of management
which the law defines to include
 Acts done for the preservation or maintenance of property,
 leases for terms not exceeding three years,
 the collection of debts, the investment of income and the discharge of debt
 The sale of crops, goods intended to be sold or perishable commodities
To carry out actions than the one listed above special authority from the principal is required.
When an agent can carry out the above acts with the mere act of being an agent he in addition
require to have special powers for the following acts
 alienate or mortgage real estate(immovable property)
 invest capitals,
 sign bills of exchange or similar commercial instrument
 Effect a settlement, consent to arbitration
 make donations
 bring or defend an action.(act of suing or being sued in a court of law)
Generally the law states Special agency shall confer upon the agent authority only to conduct the
affairs specified therein and their natural consequences according to the nature of the affair and
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usage. Accordingly looking in to the practice and traditions of the market upon which the agency
revolves around is needed to determine a number of issues.
Lesson 5(2)
Duties of the Agent and Principal
For the effective implementation of agency both the parties are expected to perform their specific
objectives. Here is a discussion of the basic duties of the agent and the principal as stated in the
Ethiopian civil code. Bear in mind that the contract of agency might put additional duties and so
long as such is agreed between the parties and it helps to the performance of the contract it is
viewed positively.
Duties of the agent
1. Duty to act with strict good faith- the agent is expected to perform his duties with a
good faith explained by the term strict. This shows the high degree of trust that is
shouldered on the agent. Although the law does not clearly define the term good faith we
can connect points and understand what acts by the agent will create the assumption to
the presence or absence of good faith.
a. The agent shall act in the exclusive interest of the principal Any act done by him in his
own interest or to secure the interest of other parties than the principal will be taken as a
bad faith act or lack of strict good faith.
b. The agent shall not drive any benefit from the agency unless allowed by the principal.
Absent the principals consent if the agent has derived benefit of any sort using his power
of attorney then we can claim good faith is not present.
c. If the agent makes use of information he secure via the agency to the determinant of
the principal then good faith is not present.
d. If the agent keeps secrete or fails to communicate facts that are likely to change or
affect the agency to the principal the agent is presumed to act in bad faith.
2. Duty to account-The agent shall account to the principal for all sums received by him
and all profits accruing to him in the course of his employment. He also has additional
duties of accounting the management of affairs of the agency upon request of the
principal.
3. Duty to act diligently-the agent is expected to perform his actions diligently as a ‘bonus
pater families.’ The Latin phrase simply means the agent’s act of diligence shall compare
to the care, a good head of a family shows to affairs of his household and family. Both
acts of fraud and default in carrying out his activity will prove the absence of diligence in
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performing his act. The minimum level of diligence expected in any case (even when the
agent is not remunerated) shall not be less than what the agent will do if he was handling
his own case. It is normally expected that a person will not be negligent or fraudulent
towards his own affairs.
4. Duty to act personally- in the absence of clears authorization from the principal or if
custom has it that personal performance is not an issue, the agent cannot delegate his
power to a third party. All the acts must be carried out by the agent in person.
Duties of the principal
1. Remuneration-the principal has a duty to remunerate the agent. The amount to be paid is
as agreed in the contract. If parties have not fixed remuneration in their contract the court
can fix the amount
2. Expense and outlay advancement-the principal is expected to advance all sums
necessary to carry out the agency. The agent is acting on behalf and for the benefit of the
principal. Accordingly all needed sums to make the agency effective must prior be put to
the use of the agent. In case the principal has failed to advance this sums and the agent
used his personal cash the principal has a duty to reimburse the sum incurred by the
agent, interests added.
3. Releasing the agent from liability- in situations where the agent has sustained damages
and liabilities in the interest of the agency and the principal, the agent must be released
from such liabilities and this according to the law is the task of the principal.
4. Agent’s lien- the principal cannot claim on his properties on the hand of the agent so
long as he has not paid his dues in relation to the agency. This entitles the agent to a
legal right of lien on the objects of the principal entrusted to him by reason of the
agency.
5. Ratification or repudiation- when an agent acts on behalf of the principal and the act is
found to be outside or beyond the scope of agent’s power as agreed in the contract, the
agency law of Ethiopia puts an option to decide the fate of the transaction to the
principal. Accordingly the principal (the person on whose name an act is performed) is
expected either to ratify or repudiate the act. Ratification is an act of validating the
transaction hence the act will be considered as done within the scope of the agent’s
power giving it an effect of being considered as act done by the principal. The absence
of clear ratification is considered as repudiation (the principal has not validated the act
of the agent) and accordingly the effect is same with invalidation of contracts. on a very
selected transactions the law itself will put a duty of ratification on the principal if it
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considers the deviation from terms of contract is found to be reasonable and necessary.
The discussion of unauthorized agency will be proper in this place. Unauthorized
agency according to Ethiopian law occurs where a person who has no authority to do so
undertakes with full knowledge of the facts to manage another person's affairs without
having been appointed an agent. Where the principal's interest required that the
management be undertaken, he shall ratify the acts done by the acting person in his
name. Here also the issue of ratification and repudiation come to the picture.
Termination of agency
Agency can terminate for all the reasons we discuss in termination of contract in lesson 3(7).But
the basic reasons discussed under the agency law are
a. Revocation of agency- this is a ground provided for the principal. At his discretion the
principal can revoke his appointment.
b. Renunciation of agency-this is a ground provided for the agent. The agent can renounce
his appointment by notifying the principal. To renounce, acceptance must precede. The
agent may expressly or impliedly accept the authority conferred on him by the principal.
But on the currency of the agency as in the case of the first time the principal asks him to
be an agent nothing prohibits the agent from refusing to continue being an agent.
c. Death, incapacity and bankruptcy of contracting parties- if the agent or principal die or
is incapacitated or become bankrupt the agency will terminate save contrary agreements.
Question
Elaborate the effect of ratification and renunciation of agency?
Lesson 6
TRADERS AND BUSINESS
The definition Rendered to business in common parlance is a reference to any Economic activity.
If the act involves the flow of cash there is a tendency of categorizing it in business activity. The
Ethiopian Commercial law, found in the commercial code tends to think in a different way.
Though certain Economic activities are labeled as trade a business is rather defined as
“A business is an incorporeal movable consisting of all movables property brought together
and organized for the purpose of carrying out any of the commercial activates specified in Art 5
of this code.”
The major points in this definition are
 Incorporeal Movable
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A business is incorporeal as it is a concept. It has no life/existence, but humans run it. It can’t be
treated to self exist. It is incorporeal movable as it consist movable properties to run it. The
commodities/goods help the business to run properly. The incorporeal elements of a business are
said to also include, Trade names, Trade-marks, patent/copy rights and other special rights. The
law has purposely ousted immovable property from forming part of the business, hence an
incorporeal movable. It is presumed business in the law is related with the task a trader carries
than the place where he carries it. The Banking Business of Awash Bank can still survive, though
Awash sells/leases its branch office around 6 kilo. The building (immovable) does not form part
of the business. The law but recognizes the ‘Right’ to lease premise of the business as one valid
elements.
 Economic activity as specified in Art 5
It is only those persons who carry the Economic activities listed under Art 5 who are considered
as traders by the law, so that they run a business. In the terms of the law every trader operates a
business. The list call traders only those persons who
A. Professionally (as part of their day to day life and full-time and permanent task job)
B. For gain (The motto behind involving in this task shall be making profit. Monetary
gain shall be the purpose in mind and paper)
C. Carry on the following activities (A list of 21 sub articles exists narrating different
activities, here is the list in full)
 Purchase of movables or immovable’s with a view of reselling them either as they are or
after alteration
 Purchase of movables with a view to letting them for hire;
 Warehousing activities
 Exploitation of mines, including prospecting for and working of mineral oils
 Exploitation of quarries
 Exploitation of salt pans
 Conversion and adaptation of chattels such as foodstuffs, raw materials or semi finished
products
 Building, repairing, maintaining, cleaning, painting or dyeing movables
 Embanking, leveling, trenching or draining carried out for a third party
 Carriage of goods or persons
 Printing and engraving and works connected with photography or cinematography
 Capturing, distributing and. supplying water;
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 Producing, distributing and supplying electricity, gas, compressed air including heating
and cooling;
 Operating places of entertainment or radio or television stations
 Operating hotels, restaurants, bars, cafes, inns, hairdressing establishments and
public baths;
 Publishing in whatever form, and in particular by means of printing, engraving,
photography or recording;
 Operating news and information services;
 Operating travel and publicity agencies;
 Operating business as an agent, broker, stock broker or commercial agent
 Operating a banking and money changing business;
 Operating an insurance business.
The problem in the listing is the effort made in exhaustively stating trade activities in
such a limited way and forgetting the nature of the world’s dynamic businesses. Through
the passage of time the human mind was creative enough to act as Midas-touch by
turning different activities to a business set-approach. The situation in our code is
criticized in a much wide way as some very common activities which a lay-man will
label as trade were failed to make it in the list. Examples could be imports & export,
educational service, Health Service, Consultancy, Construction, parking and the timely
innovations, internet cafes and the like.
N.B laws has amended Art 5 by an act of incorporating other activates in the list. (Look
at proclamation 67/97)
Any Exceptions
Even though by definition they fall in the Article 5 listing of the commercial code some
groups of individuals are not considered as traders.
It doesn’t mean they are left unregulated, yet they are not in the scope of the law that
governs traders. These are
a. Agricultural/ Forestry undertakings/nursery men: - persons who carry out

activities relating to agriculture if they are selling products of their lands whether
they act individually or collectively. (The law has also incorporated fisher men and
nurserymen in these category)
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b. Handicrafts men/women: - These are person carrying their own activity mainly living on
their manual labor (some minor mechanical power) being assisted by family or
employees not exceeding three in number. They buy of needed materials to carry their
activity and never setup stocks/warehouses. It is believed the minor capital they run has
been a reason to exempt them from the trader status.
c. Bodies corporate under public law:- An administrative agency or even a public

undertaking established by law can carry on Economic activity listed under Art 5.
Yet they are not treated as traders and a different aspect of law governing their act
will be prescribed. These public enterprises have a primary motive of providing
goods and services to the public than profit, although the making of profit is also
possible.
Can you give an example of a public enterprise in Ethiopia?
d. Religious institutions- the main aim of religious institutions is to serve their

followers as to the cannon and dogmas of the religion. in the process the institutions
may be involved carrying the activities listed under article 5.this will not make them
traders as they are clearly exempted from being considered as traders.
To trade as a constitutional right
The Ethiopian Constitution under Article 41 states.
“ Every Ethiopian has the right to engage freely in Economic activity and to pursue a livelihood
of his choice any where with in the National territory”
This constitutional right guarantying the freedom of individuals is further emphasized by the
commercial code. Article 22 of the code allows persons a right to carry out trade activities.
Major duties of traders
a. Keeping Books and accounts as required with laws. (petty traders may be exempted
from doing so)
b. Duty to register in commercial register: (The act of entry of declaration by the would
be trader before authorities responsible to keep commercial register i.e. Ministry of
trade) The act of registration made principally may extend to other places of the
trader is to operate various branch offices. [Summary Registration] Registration is a
prima-facie evidence of being treated as traders. And failure to register while
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carrying out activities of trade has both civil and criminal liabilities. The contents of
the registration are listed under Art 105 of the commercial code.
c. Duty to hold business license-the commercial law of Ethiopia prohibits traders from
operating business without holding a valid business license. The license principally
issued by the ministry of trade can also for certain specific trades be issued by other
organs as ministry of mines( for mining activity) ministry of education( for
educational service)
d. Payment of appropriate taxes due from the business.
Lesson 6(2)
Elements of a business
The main element of a business is
As stipulated under Art 127 of the Commercial Code, elements of a business include both
corporeal & incorporeal elements. The corporeal element refers to the equipments and goods that
help for the smooth running of the business. An example in the case of the business carried by
Saint Mary’s Education center, plc Can be, the chairs in the class, the black & white board, and
the computers in various offices
The incorporeal elements are?
The main incorporeal element of a business is what is referred as ‘goodwill’. The code of
commerce defines good will as
“ The good will results from the creation and operation of a business and is a value which may
vary according to the probable or possible relations between a trader and third parties who may
require from him goods/service” (Art 130 of Commercial code)
Each one of us has a certain positive attachments to an individual trader or a product of a
company. The attitude to like a certain trade brand/mark is what we call ‘good will’. In simple
terms, ask any person the Hotel he likes most or the beverage he prefer to consume or the brand
of cloth he loves to wear. One may like a suit by Ambassador while another likes to wear a suit
by Leykun. The preference of Ambassador over Leykun or other similar clothing traders what
ever the reason, is presumed to result from the good will the business has over the consumer.
Trade name & Trade Mark

A trade-name is the name a trader operates a business under. It shall designate the nature of
business under taken in a clear manner. It shall be the prerogative of a trader to register such to
an appropriate authority. The usual practice is using the trader’s own name/name of family
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members. Yet a trader can take an assumed name to carry his trade by. The usage of trade name
is mandatory. The trader must be careful in selecting a name as he has the duty of registering
same in the commercial register and ministry of trade will be willing to register only when the
name
a. is not identical or misleadingly similar to the trade names previously
registered
b) Is not misleading other business persons and the society, in spite of the fact that it is not
previously registered
c) The part of the trade name desired to be owned solely by the applicant is not a descriptive or a
generic or a common name
d) That the trade name is not represented only by numbers; or
e) is not similar to the names of public bodies or public enterprises
f) is not similar to the name of any political party or labor union or any other association or aid
organization
g) a proper authorization has been obtained to use as trade names the names of renowned people
or leaders of countries, if the name is so represented; or
h) the trade name of the business operated by a sole business person indicates the type of
business carried on; or
i) Is not among trade names well known in other countries or is not the one that has international
recognition, unless an authorization by the owner to use it has been secured, even though not
registered as a trade name in Ethiopia; or
j) is not submitted by adding prefix or suffix to an already registered trade name; or
k) Where the trade name is an acronym that it is meaningful or is representative of the name of
the applicant or where it is composed of the names of the members of a business organization that
it contains the beginning letters of the members; or
l) where it is intended to use the names of countries as trade names of business organizations,
that citizens coming from the countries are establishing the business organizations; or
m) Where it is intended to use a trade name of a business organization or a sole business person
registered in another country as a trade name of a business organization or a business of an
individual business person, that an authorization is obtained and that the same is authenticated in
Ethiopia; or
n) does not have similar reading sound with an already registered trade name; or
o) is not contrary to morality or public order;
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A trade-mark (as the commercial code calls it ‘Distinguishing mark’) is either a name,
designation, sign, emblem affixed on the premise of the business or on the product itself. Though
it is not compulsory to use trade-marks, it is advisable from marketing point of view. The human
mind responds well to the signs/marks than words/names. We are all aware what comes to our
though when we see marks like.
(
When looking for a trade mark a trader must be careful that the mark is capable of clearly
distinguishing the product/service of the trader from other traders/persons. Under this general
bases a trade mark is not capable of being registered and protected if
a. the trademark consists of sound or smell;
The law allows the trader to stop the act of others who are competing in the trade circle from
usurpation of trade-names and marks. As these elements form part of the business and are linked
is treated by law as ‘fault’ and the competition carried under such act ‘unfair competition”
Unfair Competition is?
Article 133 of the commercial act has listed what amounts as unfair competition, while
proclamation, No. 329/2003 (Trade practice) proclamation defines unfair competition, under
Article 10, as “Any act/practice, in the course of commercial activities, that aims at eliminating
competitors through different methods”.
a. Misleading customers (misrepresentation)

b. Making false statement about a trader (Fraudulent act)
Now the usage of an exact trade name/mark or usage of others mark/name by making minor
modification, which actually didn’t for that much from creating confusion among the users of
those product is treated as ‘unfair competition’. The court has the power of ordering damages to
the defaulted trader, cessation of the act/practice/publication of apologies and clarification.
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Say yes/No. for the claim the following traders raise on issues of good will and unfair
competition.
Sony/sonyo
St. Mary’s University College / St. Mary’s Construction Company
Hayat Real state/ Ayat shoe factory
Tibebu workiye Records/Tibeb Jewelry
Addidas/ Adibas/Adidos/adidas
Awash bank S.C. / Awash Insurance S.C. which of the following acts constitute ‘unfair
competitor’
- an act misleading the public about an enterprise of its product/service
- an act of disclosing information with out consent of the holder
- false/unjustifiable allegation about a product
- Agreement of jointly fixing price
- Agreements to allocate Quotas for sale
- Refusal to deal/sell a service.
Comment
1. Patent/ copy right do not form part of a business?
2. Assets and debts of the trader do not form part of a business?
Lesson 7
BUSINESS ORGANIZATIONS INTRODUCTION
In lesson 6 we have seen the opportunities provided by the law for each person to work as a
trader. In common business terms a trader refers to a sole-proprietor. The Ethiopian constitution,
which is the base/source of all laws- in the country, makes it possible for persons to organize for
purpose of lawful nature. The law reads “Every person has the right to freedom of Association
for any cause/purpose”. The cause is obviously expected to be a lawful one. Basing such
constitutional right persons form different groups to achieve various goals. When one look at
Article 404 of the Ethiopian Civil Code for instance we have associations which are groupings
formed between two or more persons with a view to obtain a result other than securing and
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sharing profits. Persons will form groups with different objectives in mind. In Ethiopia for
example we’ve groupings called ‘Idir’ where in the purpose of associating is to help one another
at time of sadness/Death. People associate with one another for different objective than profit.
The moment their aim turns to one that relates with the making of profit they are deemed
Business organizations partnership/companies.
Quere
Are Trade unions/Groupings of Religious characters civil Associations or Business Organization?
When traders join together to run an Economic activity it is said they create a company. When
an organization is formed by was of a partnership agreement, the resulting association is called
‘Business organizations’. The partnership agreement, as defined under Art 211 of the Ethiopian
Commercial Code is
a. a contract
b. Where two/more persons who intend to join together and cooperate
c. Bring together contributions &
d. For purpose of carrying out economic activities
e. And participate in the profits & losses arising there of
Unlike other contracts the persons create a relationship assuming an indefinite stay in the
transaction. Unlike other contracts the parties promise to work together for common benefit.
Unlike other contracts parties contribute to the effect of running a business and resulting at profit.
Unlike other contracts, traders jointly share the benefits as well as responsibilities that arise out of
the business. In the terms of the commercial code any provision inserted in the partnership
agreement giving all the profits to a partner or reliving partner(s) from sharing in the loss is
void(unacceptable) by law. A business organization is then an association of such nature which
acquires right and incurs liability through agents who run the organization. The idea of carrying
trade by group than acting individually is with manifold benefits. Our forefathers has stated long
ago.
“ሃምሳ ሎሚ ለአንዱ ሰው ሸክሙ ለአምሳ ሰው ጌጡ ነው፡፡”
“ከአንድ ብርቱ ሁለት ደካማ;
“ድር ቢያብር ፤አንበሳ ያስር”
A Business organization in principle carries a Commercial (profitable) activity. This is seen by
looking either the kind of activity they carry out (All those listed under Art 5 of the commercial
code, plus in procl. 67/97 annex) or the document that establishes the organizations.
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KINDS OF BUSINESS ORGANIZATIONS
The Ethiopian commercial code recognizes six types of business organizations. A business law
student must not confuse on the kinds of business undertakings which are known worldwide i.e.
sole proprietor (an individual trader), partnership and company. The last two are the forms
recognized as business organization but in a more elaborated way. Accordingly the business
organizations are
a. ordinary partnership(ተራ የሸርክና የንግድ ማህበር)
b. general partnership(ጠቅላላ የሸርክና የንግድ ማህበር)
c. limited partnership(ኃላፊነቱ የተወሰነ የሸርክና የንግድ ማህበር)
d. joint venture(የእሸሙር የንግድ ማህበር)
e. share company(የአክሲዩን የንግድ ማህበር)
f. private limited company(ኃላፊነቱ የተወሰነ የንግድ ማህበር)
The reason why the law puts various kinds of business association is to provide the appropriate
choice for all persons to organize in one form looking in to their interest and the characteristics
feature of their option.
LESSON 7(2)
COMPARING THE SIX FORMS OF BUSINESS ORGANIZATIONS
A better understanding of the six forms of organization will come if a thorough look is made the
following aspect of points of comparison
a. incorporation or establishment
b. issues of liability
c. kinds of business undertaken
d. partners/shareholders right and duty
e. management of the organization
f. dissolution of organizations
ESTABLISHMENT
The formation of all business organizations must be made in writing to be valid. The only
exception for this is a joint venture.
A business organization other than a share company, under formation must through the
founders or their attorney submit the following documents as may be appropriate, together with
the application format to the ministry of trade or relevant regional trade bureau
a) where the application is signed by an attorney; a power of attorney given by all of the
founders,
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b) photocopies of kebele identification card or valid passport of the attorney and the
manager and the passport size photographs of the manager taken within six months
time,
c) Original copies of memorandum and articles of association, (This are documents of high
importance in company law as they state the rights and duties of all members and govern the
company’s relation with third parties and among partners/shareholders)
d) Where there are foreign nationals as members of the business organization; documents
evidencing that the foreign nationals are considered as domestic investors or their investment
permits and
photocopies of pages of their valid passports,
e) where there is a foreign juridical person involved in the business organization under
formation; its certificate of incorporation, originals and authenticated copies of its memorandum
and article of association or similar document, a notarized minutes of resolution passed by the
authorized organ of the juridical person to join the business organization and an investment
permit where the juridical person is a foreign business organization, after authentication by
appropriate bodies in Ethiopia.
f. a bank statement that the capital of the business organization to be contributed in cash has
been deposited and all appropriate
documents relating to contribution in kind.(not for a share company)
Where the applicant is a share company; under formation, the founders or their attorney shall
submit the following documents as may be appropriate, together with the application:
a) where the application is signed by an attorney, the original copy of power of attorney
given by all the founders, photocopies of kebele identification card or passport of the attorney
and the manager and the passport size photographs of the manager taken within six months
time,
b) a bank statement showing that at least one fourth of the par value of the subscribed shares
of the company is deposited in a
blocked account,
c) original copies of minutes of resolution of the subscribers of the company and such other
documents as may be associated with the resolution,
d) original copies of memorandum and articles of association of the company,
Accordingly a business organization that passed the valid registration procedure and have its
name in the commercial registers will be treated to acquire legal existence and legal
personality.
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Ordinary partnership (art 227 of commercial code)
 each partner makes contribution in money, debt, property, use of property and
skill
 Contribution shall be equal if not agreed otherwise.
Joint venture (art 271 of commercial code)
 A joint venture is not made to third parties and if made it will be treated as actual
partnership(general partnership)
 The formation is not subject to writing or registration
 Has no legal personality
 Every partner own his contribution if not agreed otherwise.
General partnership (art 280 of commercial code)
 Must have a firm name consisting the names of at least two partners followed by the
word GP
 Memorandum of association shall contain……name/address/nationality of partners, firm
name, head office /branch, business purpose of the firm, contribution of partners and its
nature/share in profit and loss/managers/agents of the firm/life of the firm.
Limited partnership (art art 296 of commercial code)

 Has a firm name consisting name of general partners and LP.
 Memorandum of association similar with GP.
Share companies (art 304 of the commercial code)
 Shall have agreed name which shall not offend public policy or third party
right ( please read lesson on trade name) and the word SHARE
COMPANY,SC.
 Minimum capital….50, 000 birr with amount of par value of one share being
at least 10 birr.
 Minimum number of founders…5
 The company shall not be deemed formed until the capital has been fully
subscribed (meaning people have either bought or promised to buy all the
capital of the company) and one fourth of par value of the shares has been
paid up (here it means actually bought not simply promised or subscribed)
and put in a blocked account in the name of the company.
 The memorandum of association contain all the elements mentioned earlier
for the other business association and in addition…..the amount of capital
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subscribed and paid up,the par value/ number/ class and form of share,
number of directors/ their powers and duties, the auditors ,report publishing
mechanisms.
 Share companies have an additional document by the name Article of
association which governs the operation of the company. They are made in a
form provided by ministry of trade and they form part of the memorandum of
association.
 Contribution is made in cash and in kind only.
 Formation is made in two ways i.e. as between founders and by public
subscription. In the case of the former 5 or more people among themselves
come up with the required capital to run the business and form the company
without the involvement of the public at large(in this case those people who
sign on the memorandum of association and subscribe the whole capital are
treated to be founders). BUT when a company is formed by public
subscription people who have initiated plans for the formation of the
company or those who facilitate the formation (founders) will invite the
public at large to buy shares and become shareholders. The public is allowed
to subscribe to its capacity and help in the cash collection necessary to run
the business thereby become a share holder and part owner of the company.
An offer to subscribe is made via a document called PROSPECTUS. (here
people who sign the prospectus and bring in contribution in kind are to be
treated as founders)
 The founders are the persons responsible for all liabilities that occur during
the formative stage of a share company. They are specifically responsible for
any damage in connection with…..subscription of capital, contribution in
kind and accuracy of statement made to the public in respect of formation of
a company. The only advantage the commercial code recognizes for
founders, other than considering them as shareholders is the reservation of
payment of a share not exceeding one fifith of net profit for three years.
Private limited company (art 510 of the commercial code)
 Maximum number of members is 50.
 Minimum capital is 15,000 birr, the amount of a share shall not be
less than 10 birrs .
 All shares are of equal value.
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 Have a firm name followed by the word PLC.
 Contribution in cash and kind only.
 PLC is deemed formed when the memorandum of association
setting up the company is signed by all members. The
memorandum of association has a similar content with earlier
mentioned SC elements and….the statement that the capital is fully
paid.
ISSUE OF LIABILITY
Ordinary partnership- the creditors of the ps may claim against partnership asset. They may also
claim against the personal property of the partners who if not agreed otherwise are jointly and
severally liable. Also the personal creditors of the partners may attach the share in the profits due
to their debtor.
Joint venture- the manager is fully responsible for the liabilities of the JV. Partners who are not
managers shall meet liabilities only to the extent fixed in the MOA.
General partnership-the partners are personally, jointly, severally and fully liable as between
themselves and to the partnership. (So referred as the business organization with the widest
form of liability) No action can be taken against a partner for debt due by the partnership unless
it has been demanded from the partnership
Limited partnership- the liability of the firm is of two types as the kinds of partners in LP are
two…limited partners and general partners. The general partners will be liable as general
partners in general partnership (widest form of liability) but the limited partners are liable only to
the extent of their contribution. The only case their liability will be as the general partners is if
they acted as mangers of the firm.
Share companies -liability is met only by the asset of the company. Share holders are only liable
to the extent of their contribution.
Private limited companies-members are liable only to the extent of their contribution.
KIND OF BUSINESS UNDERTAKEN; ACTS ALLOWED
 A private limited company cannot undertake banking, insurance or any business of
similar nature.
 A private limited company cannot issue transferable securities
 Limited partners cannot act as managers of a limited partnership.
 A joint venture may not issue negotiable instruments
LESSON 7(3)
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COMPARING BUSINESS ORGANIZATION CONTINUED
PARTNERS/SAHREHOLDERS RIGHTS AND DUTIES
Ordinary partnership/General partnership-
Duty
-Use of diligence and skill used in dealing with private affairs
-not holding any business contrary/prejudicial to the partnership
- Use of partnership property (deemed common) in line with usual partnership practice i.e.
not to use property against partnership or partners interest.
- share expense necessary for preserving partnership property
-pay interest if borrows from the partnership
-get consent of all partners to introduce new partner
Right
-get interest if advance loans to the partnership
-right to check partnership books and papers
-right to have report for a partnership of more than year old
-right to share in partnership profit
Joint venture
Duty
- The manager shall account to the partner’s affairs of the business
- duty to deal with third parties in ones own name than in the joint venture
Right
- to be managers when no appointment is made
-to own ones own contribution, if not stated otherwise
- to supervise the work of the manager
Limited partnership
Duty
- When a limited partner allow his name to be included in the firm name he will be liable as
though he is a general partner
-the general partners have duties similar with partners in a general partnership
-limited partners can be compelled to subscribe their contribution by firm’s creditors
- Limited partners have a duty not to act as managers
Rights
-the general partners have same rights as partners in a general partnership
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-limited partners can consult with other partners, deal with the firm, investigate managerial
acts, give advice and counsel the firm.
-limited partners can be employed by the firm.
-limited partners may inspect books/accounts.
SHARE COMPANY
Rights
-the right to participate in the annual net profit
- The right to participate in the net proceeds on winding up
-the right to vote in meetings
- Right to allotment of cash share when capital increase
-right to pledge or usufruct share
-right to inspect register of share holders
- right to transfer shares, if not restricted by article of association or resolution of extra
ordinary meetings
- right to act as managers of the company.
Duty
- Duty to meet calls for payment of subscribed shares
PRIVATE LIMITED COMPANY
Rights
-the right to assign shares
-the right to vote in meetings
-the right to inspect documents
MANAGEMENT OF A BUSINESS ORGANIZATION

It goes with out saying that the achievement of objective of any organization depends among
other things on the fact how the organization is managed. In recent times we have seen the
failure of giant national and multinational companies attributed to incompetent/negligent
management practice. Every business entity has a mission, the making of profit. Partners and
shareholders are happy if their organization is making profit and there is a dividend they are
receiving. The yardstick to a business firm as to whether it is performing well or not can be
primarily measured by the profit it is earning. The theory of the firm, the most prominent
theory in business law speaks that a firm is engaged in an economic activity for profit. And
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with poor management profit is an unthinkable reality for it is the management of a firm
which will determine both the short term and long term strategies for success of the firm.
Managing a partnership
The Ethiopian commercial code has built a very complex structure of management for
companies than partnership. The reasoning is simple, partnership being considered as
association of persons who are closely related in blood or idea, plus the few members they
will have can allow for a very close look of the day to day activity of the firm by all partners.
In all partnerships, in the absence of an appointment by meeting or memorandum of
association all partners are treated to be managers of the partnership (art 236,275,287,300)
N.B In limited partnership only the general partners can act as managers.
Once a manager(s) have been appointed in a partnership a wide power of administration of
the partnership is given to him and it is only on the proof of good cause which the court has
to agree with an act of expulsion can occur. Good cause has been defined by the Ethiopian
commercial code as gross breach of duty or unfitness to exercise powers of management.
Managers shall be liable to the partners for failure to carry out duties as to the law or
partnership agreement. Managers as to the law are persons who have been authorized,
expressly or tacitly to carry out acts of management and to sign in the name of the firm. To
employ our lesson on agency managers are agents of the partnership while the partnership is
the principal. If so every act they carry out are deemed to be as an act carried by the firm. The
duties of the agent are also the duties of the manager (PLEASE SEE THE SECOND
LESSON ON AGENCY)
Partnership can also be managed by persons who are not partners of the firm.
Managing a company
Taking in to account the kind of complex business undertaken by companies, the capital
involved, and the role of the companies business on overall economy of a nation the
management structure of a company is wide and complex.
Three institutes are put in place to look-over the management of Share Company.
A. DIRECTORS-some major points on directors
- Only members of the company can act as directors (both natural and artificial persons)
- Minimum of 3, maximum of 12 directors form board of directors
-can not be appointed for more than 3 years term, but are eligible for reelection if not prohibited
by Moa/Aoa.
-May or may not be remunerated\ receive a specified share (not exceeding 10 % of the net profit.)
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-may be revoked at any time by a general meeting for good cause. OR with out good cause with
compensation
-PLEASE READ ART 355,356,357,362,363,364,365 OF THE COMMERCIAL CODE FOR
DETAIL POWER, DUTY, LIABLITY REGARDING COMPANY DIRECTORS.
B. AUDITORS
- A person or a body corporate may act as an auditor(s)
- have office period of 3 years
-founders/contributors in kind/beneficiaries holding special right in the
company/directors/spouses and relatives of all the above can not be appointed as auditors.
-read article 374,378,380 to see powers, duties and liabilities concerning auditors.
C. SHAREHOLDERS MEETING
Compared to the two institutes this one is more close to all share holders as it gives the members
opportunity to air their concern and validate or oppose actions carried out by the directors. The
meeting is deemed to be the voice of share holders. The commercial code states a meeting of
shareholders properly established and conducting its business in accordance with law acts on
behalf of all shareholders. The decisions made bind all members whether absent, dissenting,
incapable or having no right to vote.
Meeting can be called by directors/auditors/liquidators/and even the court. The place, day,
agenda of the meeting shall be communicated to all shareholders.
Meetings can be GENERAL OR SPECIAL. General meeting can also be ORDINARY or
EXTRAORDINARY. (PLEASE SEE ART417FF, 422FF, 426FF TO KNOW THE DETAIL
ON THE QUORUM, MAJORITY AND AGENDA DEALT WITH THESE VARIOUS
MEETINGS)
Management of private limited company is less complex than a share company. The law
requires a meeting of partners and appointment of an auditor only when the members are
more than 20 in number. In other cases a manager(s) like in the case of partnership suffice to
run a plc.
DISSOLUTION OF A BUSINESS ORGANIZATION
The commercial code of Ethiopia has generally mentioned three ways to bring the life of a
business organization to an end
WAY 1- DISSOLUTION UNDER THE LAW (where the purpose of the company is
achieved or can not be achieved)
WAY 2- DISSOLUTION BY AGREEMENT (partners agree to dissolution)
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WAY 3- DISSOLUTION BY COURT (a partner has applied for dissolution by a good cause
(defined as failure of a partner in his duty/existence of serious disagreement among
partners/shareholders) to a court and the court has given a decision of dissolution)
To see specific grounds of dissolution for each business organization see the following
provisions
Ordinary partnership/general partnership/limited partnership (ART 258 FF)
JOINT VENTURE (ART 278)
Share company (art495 ff)
Private limited company ( art 542 ff plus art 258/495)
LESSON 8
NEGOTIABLE INSTRUMENTS
(TAKEN FROM INSTRUCTOR SHUME ALEMU’S BANKING HANDOUT)
Negotiable Instruments
A negotiable instrument is a special type of instrument produced as a result or for the purpose
performing a contract which implies an "agreement" for the payment of money that is
unconditional and capable of transfer by negotiation. Common examples include cheques,
banknotes (paper money), and commercial paper.
A negotiable instrument is not a contract, as contract formation requires an offer, acceptance, and
consideration, none of which is an element of a negotiable instrument. Unlike ordinary contract
the right to the performance of a negotiable instrument is linked to the possession of the
document itself (with certain exceptions such as loss or theft).The rights of the payee (or holder in
due course) are better than those provided by ordinary contracts as follows:
 The rights to payment are not subject to set-off, and do not rely on the validity of the
underlying contract giving rise to the debt (for example if a cheque was drawn for
payment for goods delivered but defective, the drawer is still liable on the cheque)
 No notice needs to be given to any prior party liable on the instrument for transfer of the
rights under the instrument by negotiation
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 Transfer free of equities—the holder in due course can hold better title than the party he
obtains it from
Negotiation enables the transferee to become the party to the contract, and to enforce the contract
in his own name. Negotiation can be effected by endorsement and delivery (order instruments), or
by delivery alone (bearer instruments).
A negotiable instrument is a
(1) Written instrument,
(2) Signed by the maker or drawer of the instrument,
(3) That contains an unconditional promise or order to pay
(4) A fixed amount of money (with or without interest in a specified amount or at

a specified rate)
(5) On demand or at an exact future time
(6) To a specific person, or to order, or to its bearer.
Types of Negotiable Instruments among others;
A. Bill of exchange
B. Promissory note
C. Cheque
D. Certificate of deposit (WHDC)
E. Bearer Share Certificate
F. Life Insurance Policy
Promissory Note
The instrument of document containing a promise must be made in writing: An oral promise to
pay money is not a promissory note. The writing may be in pencil or ink. It may also include
typing, printing and other methods of reproducing words in an express and visible form.
Features of Promissory Notes
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It contains a promise to pay: - the promise to pay must be expressed in the instrument. A mere
acknowledgment of indebtedness without promise to pay does not constitute or will not be taken
as a promissory note. The promise to pay must be unconditional; meaning without including any
condition. The person promising to pay must put his signature on the instrument. Without his/her
signature the instrument is incomplete and has no effect at all.
The maker must be certain which means the instrument must clearly state or indicate the person’s
liability to pay. Two or more persons may make a promissory note, jointly and severally. The
sum payable must be certain or the amount payable must be clearly stated in the document. The
amount promised to be paid must not involve further arithmetic proceeding; In other words, the
amount payable must be certain.
The instrument must contain a promise to pay money only. If an instrument contains a promise to
do something besides a promise to pay money, it still qualifies to maintain a status of promises,
and nonetheless it is not a promissory note.
The payee must be certain that to whom the money is to be paid or the beneficiary of promise put
forward must be clearly stated in the instrument. Accordingly other administrative requirements
may also be introduced to the making of a promissory note like printing a stamp must be made as
per the regulation of the country, if such procedure is required.
Bill of exchange
The second type of credit instrument is bill of exchange also known as draft or bill. It is an order
by a seller to a buyer or by a creditor to a debtor to pay a certain sum of money to himself or to
bearer or to another person. A bill of exchange may be defined as an instrument in writing
containing an unconditional order, signed by the drawer some time called the maker ordering the
drawee to pay a certain sum of money, with or without interest, only to a specified person, order
or bearer, known as payee, on a specified or future date.
Sample Bill Of Exchange
Abyssinia Ltd ADDIS ABABA
st
21 of February, 2009
$ 165, 000.00
At sight, after sight of exchange pay to our order the sum of birr one hundred sixty five thousand
only for value received
Drawn under irrevocable credit of Dashen Bank
To: Commercial Bank of Ethipia For and on behalf of

Parties
Lideta Subto aCity,
bill of exchange Branch
Wbishebelle Abyssinia LTD
Addis Ababa, Ethiopia
Ref: 58 General Manager
There are three parties to a bill of exchange: drawer, drawee and payee.
1. A Drawer is the person who draws the bill (who writes the bill or who is giving the
order).
2. A Drawee is the person to whom the bill of exchange is drawn, in the above example,
commercial Bank of Ethiopia is the drawee.
3. A Payee is the person to whom an amount is payable or to whom the money is to be paid
(who may also be the drawer or the endorsee).
Acceptance
As it has been indicated above, the bill is prepared and drawn by the creditor and sent to the
debtor. The instrument to be a document to cause actual drawing of money from the drawee, or
be considered as a valid legal document, it needs an acceptance by the drawee. Thus, when a
drawee writes his name across a bill agreeing to the order of the drawer, it is called an acceptance
of the bill;
.
Dishonor of Bills
A bill of Exchange is dishonored either by non-acceptance or non-payment. That is, where the
person on whom a bill is drawn (the drawee) refuses to accept it, within the customary time, the
person presenting it must treat it as dishonored by non-acceptance. In this case an immediate
right of recourse against the drawee and endorser accrues to the holder.
On the other hand, a bill may be dishonored by non-payment when it is duly presented for
payment is refused or cannot be obtained or when a payment is excused and the bill is overdue
and unpaid. When a bill is dishonored by non-payment, an immediate right of recourse against
the drawer and the endorser accrues to the holder.
Cheque
Cheque, as a withdrawal instrument from current account, is the most frequently used credit
instrument in the business community in order to facilitate the smooth flow of transactions. It is
also equally true that, cheque is the most fragile credit instrument, which needs at most care.
Cheque is an unconditional order, in writing, drawn on a banker, signed by the drawer requesting
the banker to pay on demand a sum certain in money to or to the order of a specified person or to
bearer.
Essentials of A Cheque
The essential features of a cheque, as extracted from the above definition, are presented as
follows:
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 An instrument in writing
 Contains an unconditional order
There is no need to use the word “order” to make a document a cheque. The order is generally
expressed by the word “pay”. The order to pay must be unconditional, that is, no condition
should be attached to the payment of the cheque.
 Drawn on a specified banker
It should be drawn on a banker only. The amount payable must be certain or definite and should
be written in words and figures.
 A certain sum of money
The order must be paid must be certain
 Payee to be certain
The person to whom the amount is to be paid must be certain. It may be made payable to a
certain person or to his order or to the bearer.
 Payable on Demand
The instrument must be payable to or to the order of a certain person or to his bearer on demand.
The banker on whom the cheque is drawn cannot postpone the payment of the cheque.
 The Maker Must Sign the Instrument
In order to be a valid document, the cheque must contain the signature of the drawer.
HOLDER AND HOLDER IN DUE COURSE
A negotiable instrument is transferable from person to person. The negotiable instrument act
confers upon a person, who acquires it bona fide, in good faith, and for value, the right to possess
good title to the instrument. Such person is called ‘holder in due course.’ Each and every person
in possession of a cheque or bill cannot be its holder in due course and cannot claim the statutory
protection granted under the law. If an instrument falls into wrong hands, the holder thereto
cannot enjoy the privileges of a holder in due course.
In case a bill, note or cheque is lost or destroyed, its holder is the person so entitled at the time of
such loss or destruction. In other words, the person who was entitled to receive payment at the
time the instrument was lost will continue to be regarded as its holder; the finder does not became
its holder..
Payment In Due Course
The Payment of a Negotiable Instrument should be made to the right person by the paying banker
or the acceptor of the bill; otherwise the latter shall be responsible for the same. “Payment in due
course” Means payment in accordance with the apparent tenor of the instrument in good faith and
without negligence to any person in possession thereof under circumstances which do not afford a
60
reasonable ground for believing that he is not entitled to receive payment of that amount therein
mentioned.
Special Crossing
Where a cheque bears a cross in its face inaddition to the name of a banker, either with or without
the words ‘Not negotiable’ that addition constitutes a crossing and the cheque is crossed specially
to that banker. The transverse lines are an essential part of a general crossing but they are not
necessary in a special crossing.
When the name of the bank is written on the face of the cheque, it is regarded as a special
crossing; the name of the bank plus the word’ not negotiable’ need to be inserted. In the case of
special crossing the paying banker should pay the amount only to the banker whose name is
stated on the face of the cheque or to its agent for collection
i. Where a cheque is crossed generally, the holder may cross it specially.
ii. Where a cheque is uncrossed, the holder may cross it generally or specially.
iii. Where a cheque is crossed generally or specially, the holder may add the words ‘Not
Negotiable’
iv. Where a cheque is crossed specially, the banker to whom it is crossed may again cross it
especially to another banker for collection.
Endorsement
The chief characteristic of a negotiable instrument is its negotiability that is it can be negotiated
from person to person. “when a promissory Note, Bill of Exchange or Cheque is transferred to
any person, so as to constitute that person the holder thereof, the instrument is said to be
negotiated.” The essence of negotiation, thus, lies not in mere transfer of the instatement form
one person to another but also in the fact that transferee gets the right as the holder of the
instrument . An instrument may be negotiated in any of the following two ways:
1. By Mere Delivery: - A promissory note, bill of exchange or cheque payable to bearer is
negotiated by mere delivery thereof. Thus in case of a bearer instrument mere delivery
thereof constitutes its negotiation. The delivery may be given either to the transferee himself
or to his agent or banker acting for him.
2. By endorsement and Delivery:- a promissory note, bill of exchange or cheque payable to

order is negotiable by the holder by endorsement and delivery thereof. Thus the negotiation
of an order instrument requires first an endorsement thereon by its holder and thereafter its
delivery to the transferee.
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Endorsement
when the maker or holder of a negotiable instrument signs the same, otherwise than as such
maker, for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed
thereto, or signs for the same purpose a stamped paper intended to be completed as a negotiable
instrument, he is said to have endorsed the same and is called the endorser.
Thus, an endorsement consists of the signature of the maker (or drawer of a negotiable instrument
or any holder thereof but it is essential that the intention of signing the instrument must be
negotiation, otherwise it will not constitute an endorsement. The person who signs the instrument
for the purpose of negotiation is called the “endorser” and the person in whose favor the
instrument is transferred is called the “endorsee”. The endorser may sign either on his face or on
the back of the negotiable instrument but according to the common usage; endorsement is usually
made on the back of the instrument. If the space on the back is insufficient or this purpose, a price
of paper known as “along”, may be attached thereto for the purpose of recording the
endorsements.
Kinds of Endorsement
1. Endorsement in Blank
If the endorser sings his/her name only, the endorsement is said to be ‘in blank’. The endorser
does not specify the name of endorsee with the effect that an instrument endorsed in blank
becomes payable to the bearer even though originally payable to order and or further
endorsement is required for its negotiation. Such endorsement makes it a bearer cheque,
which may be further negotiated by mere delivery. But if such a cheque is a crossed one, its
payment cannot be made at the counter of the bank, even if it is endorsed in blank. If the
endorsements in blank is followed by endorsement in full, it becomes payable to or to order
of the person mentioned in last endorsement.
2. Endorsement in Full
If in addition to his signature, the endorser adds a direction to pay the amount mentioned in
the instrument to or to the order of a specified person, the endorsement is said be
‘endorsement in full’. An endorsement in blank may be converted into an endorsement in
full. The holder of a negotiable instrument endorsed in blank may, without signing his own
name, by writing the endorser’s signature a direction to pay to any other person, convert the
endorsement in blank into an endorsement in full, and the holder does not hereby incurs the
responsibility of an endorser .
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3. Restrictive Endorsement
Generally speaking, an endorsee of a negotiable instrument is fully competent to further negotiate
it, but restrictive endorsement takes away the negotiability of such instrument. The endorsement
may, by express words, restrict or exclude the right to negotiate or may merely constitute the
endorsee an agent to endorse the instrument or to receive its content for the endorser or for some
other specified person. Such an endorsement prohibits further endorsement and is called”
Restrictive Endorsement.
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Lesson 1

WHERE DOES THE LAW COME FROM?

THE FUNCTION OF LAW IS?

AND KINDS OF LAW

When does personality it start

B. TWO OR MORE PERSONS (parties to a contract)

C. OBLIGATION OF PROPRIETARY NATURE, CREATE/VARY/EXTINGUISH…….

Here are list of objects of contracts, list them as lawful/possible/ defined/moral or

- Contract to let a car for 2 weeks

Is Incapacity Exclusion from rights?

And the end of incapacity is?

Parties rights Parties duties Position

Any indicator of such fact

Say Non-performance or not

Which places/ time of performance is correct /incorrect?

Which, among the list, go against ‘personal Liberty?’

And Notice is?

Performance and non performance in sales contract

a. Agricultural/ Forestry undertakings/nursery men: - persons who carry out

c. Bodies corporate under public law:- An administrative agency or even a public

d. Religious institutions- the main aim of religious institutions is to serve their

Major duties of traders

Trade name & Trade Mark

a. Misleading customers (misrepresentation)

Hayat Real state/ Ayat shoe factory

Tibebu workiye Records/Tibeb Jewelry

Limited partnership (art art 296 of commercial code)

MANAGEMENT OF A BUSINESS ORGANIZATION

(2) Signed by the maker or drawer of the instrument,

(3) That contains an unconditional promise or order to pay

(4) A fixed amount of money (with or without interest in a specified amount or at

(5) On demand or at an exact future time

(6) To a specific person, or to order, or to its bearer.

Types of Negotiable Instruments among others;

D. Certificate of deposit (WHDC)

E. Bearer Share Certificate

F. Life Insurance Policy

Features of Promissory Notes

Drawn under irrevocable credit of Dashen Bank

To: Commercial Bank of Ethipia For and on behalf of

2. By endorsement and Delivery:- a promissory note, bill of exchange or cheque payable to

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