St.

Mary’s University

Faculty of Law

Business Law Handout

Andargachewu Worku.

FEBRUARY, 2021

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The Nature of Law

Before typically appraising the nature of law, there is a necessity in an interest of clarity to
question: What is law on a particular issue? The response to this question is always local and
contextual and answers to it are expected and rather bound to differ according to the specific
jurisdiction in which the questions are raised. In contrast, the philosophy of law, jurisprudence, is
interested in the general treatment of the question: What is Law? This general question about the
nature of law presupposes that law is a unique socio-political phenomenon, with more or less
universal characteristics that can be captured, understood, through philosophical analysis.
Because the general jurisprudence that assumes philosophical inquiry about the nature of law,
which as a result is meant to be universal both in compliance and theory. It assumes that law
possesses certain uniform features, and it possesses them by its very nature, or essence, as law,
whenever and wherever it happens to exist. However, even if there are such universal
characteristics of law, the reasons for a philosophical interest in what makes law universal in
nature remain to be explained separately. First, there is the undisputed intellectual interest in
understanding such a complex social phenomenon, which takes the subject as one of the most
closely connected aspects of human culture as exactly reflected in modern age understanding.
Law, however, is also a territorially limited and typical to respected society’s interest
representing normative social practice. As a source of authority and multi - purpose tool, law
purports to guide human behavior and transaction by giving rise to reasons for action. An attempt
to explain this normative, reason-giving rise to aspect of law is one of the main challenges of
general jurisprudence. These two sources of interest in the nature of law are closely linked since
law is not the only normative domain in our culture; morality, religion, social conventions,
etiquette, and so on, also guide human conduct in many ways which are similar to law.
Therefore, part of what is involved in the understanding of the nature of law consists in an
explanation of how law differs from these similar normative domains, how it interacts with them,
and whether its intelligibility depends on such other normative orders, like morality, custom, or
social conventions.

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Contemporary legal theories define these two main interests of the nature of law in the following
terms. First, we need to understand the general conditions which would render any widely
exercised norm legally valid. For example more questions could be asked as: is it just as a matter
of source to the norm, such as its enactment, pronouncement, by a particular political institution,
or is it also a matter of the norm's content that renders the norm a status of law? This is the
general question about the conditions of legal validity. Second, there is an interest in the
normative aspect of law. This philosophical interest is twofold: A complete philosophical
account of the normativity of law comprises both an explanatory and a normative-justificatory
task. The explanatory task consists of an attempt to explain how legal norms can give rise to
reasons for action, and what kinds of reasons are involved. The task of justification concerns the
expression the of reasons people to have acknowledged law's normative aspect. In other words, it
constitutes the attempt to explain the moral legitimacy of law. A theory about the nature of law,
as opposed to critical theories of law, concentrates on the first of these two questions. It attempts
to explain what the normativity of law actually consists in. Some contemporary legal
philosophers, however, doubt that these two aspects of the normativity of law can be separated.

The following list of elements could give a clue on the nature of law

… Contd/ Nature of Law

(A) Normative: obligatory on human conduct

(b) Institutionalized

(c) Coercive

(d) General application

Thus by more analyzing the conditions of legal validity and explaining the normativity of law
form the two main subjects, any general theory about the nature of law can be derived. In the
course of the last few centuries, two main rival philosophical traditions providing different
answers to these questions have emerged. The older one, dating back to late medieval Christian
scholarship, is called the natural law tradition and positivism tradition. The main controversy

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between these two traditions concerns the conditions of legal validity. Basically, what the Legal
Positivism asserts, and Natural Law denies is that the conditions of legal validity are purely a
matter of social facts. In contrast to the Positivism, Natural Law claims that the conditions of
legal validity are not exhausted by social facts; the moral content of norms also has a role on
their legal validity. As it is much philosophical, subjective, and open to several dissenting
thoughts of circumstantial kind, the task of drawing a one size fits all concept never is an has
been easy to get in to terms. Nevertheless, in conclusion, the following famous statement is
finally provided from the renowned philosopher’s expression of Saint Augustine: unjust law is
not law.

Features of Law
In both banks philosophical validity of law through the making, purpose, source, and subject, the
aspect of feature interchangeably termed as type should not be ignored, if the feature of law is to
be understood properly. In the broader sense of subject matter approach, law can be classified as
domestic and international on the basis of its source and coverage of enforcement. Normally,
domestic laws are made by the nationally delegated authority, legislature, and intended to be
implemented in the area of that state where a sovereign delegated government has effective
control. Exceptionally though, the same law could have an extended application over nationals of
such law making state who in fact reside in a foreign country or foreigners permanently or for
the time being live in the lawmaking country. By looking at the substances, law can further be
categorized as public law, which aspire to represent the areas they contain is purely public, and
private on the stock of their regulation almost dependent on humanly administered interactions.
There is not strong division between them, therefore, international conventions, laws, could
simultaneously be taken as domestic where the system expressly provides such arrangement to
be legitimate. Please see article 9 of the constitution of Federal Democratic Republic of Ethiopia.

From the enforcement point of view also, classification more familiar to international front of
application is in place namely, soft or declaratory which as a matter of lack of required number
of signatories or any reason attributable to states decision reduces the law short of binding th e
international community.

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Functions of law
In order to determine the functions or role of the law in society and business, the word law
should be defined. A forum of renowned dictionaries give the following very brief definitions for
law as a concept, law is:

A. rule of conduct or action laid down and enforced by the supreme governing authority (as the
legislature) of a community or established by custom

B. the whole collection of rules

C. the control brought about by enforcing rules

D. the instrument for a trial in a court to decide what is just and right according to the laws

E. an agent or agency for enforcing laws

F. the branch of knowledge that deals with laws and their interpretation and application

G. a rule or principle stating something that always works in the same way under the same
conditions

In an extended outline of function with examples;

….. Contd/ Functions of Law

(a) Law as preservation of order

Public order; e.g. Criminal law

(b) Law as platform for human co-operation

-law of contract

(c) Law as medium of dispute resolution

-law of tort
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(d) Law as tool of domination

-counter-revolutionary offences

(e) Law as mechanism for social engineering

-land registration

(f) Law as oversight and relaxation of morality

-decriminalizing homosexual acts between consenting adults

(g) Law as regulation of governmental powers

-constitutional law, administrative law

(h) Law as protection of individual freedom

-bill of rights, anti-discrimination legislation

(i) Law as attainment of justice

-rules of natural justice, bill of rights, social security law

Limits of Law

(a) What law could not achieve

-e.g. love

(b) What law should not interfere with?

-private life

(c) Law may not be the best option

Legal personality

The concept of the separate legal personality of company often described as a fundamental
principle of Company exists both as a powerful metaphor and a judicial realty. The interaction of
these two aspects has caused the concept to assume a life of its own as a persuasive metaphor

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which has dictated the course of law focused around its fulfillment rather than the specific
regulative aims of the law in each discrete area. The principle’s application in so many different
situations each with quiet different consequences, indicate a sense in which the law have often
merely mapped out the logical consequences of separate legal personality with inadequate
examinations as to its specific dissolution. Cases where the company seats as a separate legal
entity have taken place in the framework of a reluctant departure from the orthodoxy
adjudication and treatment including the veil, protection, provided by jurisprudence.

The metaphor of personality is useful in conceptually facilitating and describing many of the
corporation’s traditional and modem corporate attributes. Placing these attributes under the head
of separate legal personality selects for attention of a few salient from what would otherwise be
an overwhelmingly complex reality. The point of the metaphor is however to describe and not to
dictate the reality of the corporation.

A legal person, also called juridical person or juristic person, is a legal entity through which the
law allows a group of natural persons to act as if they were a single composite individual for
certain purposes, or in some jurisdictions, for a single person to have a separate legal personality
other than their own. This legal fiction does not mean these entities are human beings, but rather
means that the law allows them to act as persons for certain limited purposes—most commonly
lawsuits, property ownership, and contracts. This concept is separate from and should not be
confused with natural person. Also note that basic rights (like the rights to free speech and due
process of law) do not necessarily follow from legal personhood. A legal person is sometimes
called an artificial person or legal entity (although the latter is sometimes understood to include
natural persons as well). Although the concept of a legal person is more central to Western law in
both common law and civil law countries, it is also found virtually in every legal system.

In England and the United States, the use of this terminology does not mean that legal persons
are considered human beings as is identical to other systems of law. It is simply a "technical
legal meaning" in which "a 'person' is any subject of legal rights and duties" except some rights
by their nature are purely human and impractical to be attributed to artificial persons. Because

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these entities may have limited legal rights and duties, for which specific application they are
considered 'legal persons' to distinguish them from natural persons.

Introduction
There are different views and perspectives in defining the word person. The word
person originated from the Latin etymology. It was mostly used in theatres in the
ancient times, and it meant the mask which covers the figure of the actor. But in an
ordinary conversation it is usually referred as an individual human being. From
legal perspective “person” can be defined as human beings or legal entities that are
holders of rights and bearers of duties. Under the Ethiopian law as indicated under
Article 1 of the 1960 civil code it says that every human being (human person) are
subject of rights and duties from birth to death. But in some exceptions persons
may be deprived from these rights and the duties that they were expected to be
bound to. These can be observed from the past until the present, for instance, In
Roman law slaves, in the middle age monks and presently people sentenced by
death penalty can be cited one other cause of deprivation of rights.

Personality
The concept of personality is a basic thing in law. It’s considered to be an identity
referred to all attributes that have legal consequences. However, in ancient times
all human beings were not considered as persons or all didn’t have personality,
rather they were differentiated by being born freeman and a slave. Nevertheless,
today the status of distinction already has been eradicated and all humans are
considered to be persons by birth in general.

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Natural personality
All legal systems give personality to all human beings. As per article 1 of the
Ethiopian civil Code “human person is subject to rights and obligations from birth
to death”. This shows that the origin of natural personality is birth. There are
different types of definition for birth. But under the Ethiopian law of person there
are two conditions which are required. The first condition required for the new
born child to acquire personality is being born alive. It’s a matter of being alive or
dead at time of extrusion from his/her mother’s womb, then if he/she is born alive
then we can consider that the first condition. So, from these we can define birth as
a complete extraction of the child from its mother womb either in a natural way or
through a caesarean session is sufficient to confer personality.

No other conditions are laid down in this respect. The second condition is a matter
of viability. Here a child deemed to be viable where he/she is alive for 48 hours
after his/her birth. But, if he dies less than 48 hours after birth a child shall be
deemed to be viable. The presumption that the child shall be deemed to be not
viable. Where he dies in less than 48 hours may be rebutted by providing the cause
of death of the child. It’s the question which says: what are the factors which may
be a ground for a death of a child before 48 hours. There factors are divided into
external and internal.

E.g. when a woman is giving birth to her baby in a hospital, then after the
umbilical cord was cut and the nurse was holding the new born and she suddenly
drops the baby and his skull was crushed and died. This is one of the things
considered as external. When we say it’s internal it’s to mean that, when the death

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of child is caused because of some defects of the child that he inherited from its
mother womb.

Article 2 also says “a child merely conceived shall be considered born whenever
his interest, so demands provided that he is born alive and viable”. Here what
counts logical or which circumstances are by law regarded as “interest of a
conceived child” is so important. This interest of the conceived child refers to
patrimonial interest. It apply to the interest of the unborn child to inherit the
property or proprietary values from his/her parent that form part of the estate.

Legal personality
Legal person can be defined as different entrepreneurial organizations, agencies or
associations created by law, granted legal personality and have all attributes of
personality in general. Legal persons created by law have different terms in
different countries of the world. In Germany “Juristishe person”, in France
“persone civile”, in the countries of Anglo-American legal system, “ legal person”
or “ juridical person” and so on. Despite of different terms all artificially created
entities, all of them have a common characteristic in that all of them are recognized
as holding rights and duties with some exceptions, in the same way as human
beings.

Origin of Legal Personality

The origin of personality can be classified into 2 as:-
I. Personality by the operation of the law
II. Personality by registration
I. Personality by operation of the law
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It means that, there is no further (extra) requirement to be fulfilled for an
organization or a legal entity to be granted personality because the law has already
considered it as a person for some reason.

III. Personality by registration

By this we mean that there are more requirements or procedural limitations an
entity applying to access or regarded as or intend to acquire personality or to be
considered as a person. To acquire it through registration the processes included
are natural persons, documentation and registration for incorporation or simply
registration.

Attributes of a legal / artificial/ personality

Recently, it is globally recognized that legal persons are entitled to personalities
with some exceptions in relation to that of real/physical/persons. The following are
the distinctive features of modern legal/ artificial persons:
A. A legal person can own and administer its property; it has a full right of
possession, use and disposes its own property. But the property that belongs
to a legal person is different from that of an individual.
B. A legal person may sue or be sued in its own name, i.e. after it has become a
legal person it can bring a legal action against others in the name of the
company but not in the name of the members.
C. A legal person can enter into contractual relation in its own name. The rights
acquired and liabilities incurred as the result of the contract will remain the
rights and duties of a company.

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 D. A legal person is obliged to pay taxes on its property and any other income it
receives.
General Attributes of personality
1. Name 3. Nationality 5. Rights and
2. Domicile 4. Capacity Liabilities

The concept of obligation

Ancient Roman law defines obligation as a means of an undertaking or legally binding
relationships with respect to when one party promises the other party to perform some acts or to
do some thing or ‘a means of personal claim brought against another parties in agreement to
perform a certain act in a specified time and place. For practical and legal reasons obligation
could take the form or categorized as contractual or non-contractual relations. More precisely, an
obligation can also be understood as an undertaking or a promise to perform or not to perform
some acts or to do or to give a particular thing to the other party.

The following is an in general classification of obligation

a) Obligation to give or not to give
b) Obligation to do or not to do
c) Obligation to render rights to others to do some thing.
Black’s law dictionary defines obligation as ‘a legal duty or moral duty to do or not to do some
thing’.
Non-contractual obligations are divided into three elements of some common features. These
are;
a. Unlawful enrichment (unjust enrichment)
b. Extra-contractual (by causing damage with out having any contractual relations)
c. Engagement in any act recognized by law as obligation.

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The relation between a contract and a promise of what ever kind is not always considered as
contract; simply all promises are not contracts. But if the promise is to be accepted as a contract,
it shall fulfill requirements of the legal definition. For instance, Abebe promised not to visit city
night clubs. Then if Abebe goes to the night clubs after he promised not to visit, he can not be
sued for not keeping the promise; because the promise has not yet achieved the status of a
contract and it is only an agreement or a promise.
For the purpose of comparison, let us now see the legal definition provided under article 1675 of
the Ethiopian civil code.
‘’a contract is an agreement whereby two or more persons as between themselves create,
vary or extinguish obligation of proprietary nature’’.

Formation of contact includes the following elements, processes, which give an agreement legal
existence.

A) Consent
B) Capacity
C) Object
D) Form, if the law or the parties require a special form..

All contracts involve these elements of capacity, consent and object i.e. contract can not be made
and binding without capacity, consent, and object requirements are satisfied.

N.B. form is required for few contracts only

Generally a contract that fails to meet any one of these elements is unacceptable as contract (either
void or voidable)

A. Consent (Articles 1679-1710)

Definition; Declaration of intention to be bound by an obligation is known as Consent. A natural

or legal person has to express the willingness to create an obligation on himself, relinquish (give)
some or all of his proprietary rights. In modern times individuals have freedom to decide on their

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own rights especially property rights with out third party interference. So individual can not loose
property right unless except for expropriation or confiscation.

B. Objects of a Contract (Articles 1711-1718)

Definition; Object of a contract is an agreement of parties who actually promised to undertake a

certain duty. Terms including rights, obligation, time of performance, place of performance, time
and place of payment and mode of payment are considered as objects of a contract. Simply object
is the content of a contract that implies the rights and obligations of both parties to the contract.
The obligation may be to do some thing or to refrain from doing something or to give something
to someone. The object of employment contract, for example, is the employer agrees to pay wage
and the employee agrees to do certain job. In contract of sale of a house; the obligation of the
seller is to transfer ownership and put the house in the possession to the buyer and the obligation
of the buyer is to pay price which is the value of the house.

C. Form of Contracts (Articles 1719 – 1730)

Definition; It is the way in which the content of the contract exists or appears to others as exactly
as the law requires it to appear. Form answers the question as to how third parties such as court
could know the agreement of parties. Therefore, contract may exist either in written form or oral,
sign or conduct form. When contract is in a written form, third parties know the agreement by
reading a paper on which the agreement was written (Article 2003). Otherwise the court cannot
know the agreement of parties from oral testimony of the parties themselves or witnesses (Art
2002). In case offer and acceptance was given orally, by conduct or by sign and not reduced into
writing the contract is said to be made orally, by sign, or by the conduct of parties since it is to be
proved accordingly by the same form.

D. Interpretation of Contract (Articles 1732 -1739)

Since a contract is a law as between the parties, it may be interpreted by the court only. A law is
interpreted when it is vague, silent, illogical, ambiguous, and contradictory. So interpretation is

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giving meaning to the provisions of the contract. If the provisions of the contract are clear, there
is not need to interpret (Article 1733). Interpretations if of many types which is to be
implemented on each case that requires interpretation and specific method of interpretation. The
methods are explained below.

Searching Intention of Parties

A) Presumption of Good Faith: - While searching the intention of the parties we have
to presume that parties entered in to a contract in good faith (Article 1732). Good faith should
mean that no party to the contract intends to deceive the other party by intentionally making the
provision of the contract vague, ambiguous, silent or contradictory. In short interpretation is
necessitated with out the need and expectation of all parties to the contract. Had any party known
the problem at the time of conclusion of contract, such problem would have been solved then and
there. Moreover; parties might have not thoroughly examined each provision and words in the
contract believing that controversies would not arise i.e. they trusted each other that none of them
would attempt take unintended advantage (Article. 1732). In short good faith means that at the
time of conclusion of a contracts each party believe that every one in the contract intends to get his
own fair benefit without harming another party and interpretation becomes necessary either
because parties were not able to imagine the dispute, or words are imprecise by their nature, or
errors are committed in formulating the contract. The question of interpretation shall not arise if
the vagueness, ambiguity, or contradiction were intentionally created. But only because of the
above imperfections, interpretation becomes necessary.

B) Context of the contract: - As much as possible the meaning of a contract should be

searched from the contract itself since there is a possibility that one provision may indicate the
meaning of another provision or word in the contract. (Article. 1736(1)

C) Business practice: - As indicated under Article. 1713 and 1732 business practice is part
of a contract. So if there is no clear provisions that excludes that practice, it will be used to give
a meaning for ambiguous or vague (general) terms (Art. 1735, Art. 1736 (2).

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 D) Equity: - here good faith indicates the innocent expectation of a party from a contract
(Art. 1735). This is an exception to the general principle of interpretation, which in accordance
with the golden rule of interpretation the contract will be interpreted, even though the terms of
the disputed contract are clear. The interpreter during golden rule of interpretation asks himself,
“had I been in the position of my opponent what would have I expected from the contract?”

E) Positive interpretation: - parties are presumed to have entered into a contract

expecting certain results. So every provisions of a contract should also be given effect and
priority.

Interpretation in Favor of Debtor

As we said the main objective of interpretation is searching for the intention of the parties. But the
court may not always succeed in searching the intention. Therefore; if the court is unable to know
the intention, the law guides the court to interpret the controversial provision or word in favor of
the debtor (Art 1738(1)). Even more; if the contract is gratuitous, the court may even limit itself on
the clear provision without attempting to impose an obligation on the debtor by searching the
intention of the parties. In short in gratuitous contracts, like donation, court should not impose
obligation on the debtor by interpretation.

However; an exception to the principle of interpreting in favor of the debtor is contract of adhesion
(Art. 1738(2)). If a contract is a contract of adhesion, the court shall interpret the provisions or
words in the adhesive contract against the party who prepared such contract (Art. 1738(2). In this
case the stipulator of the adhesive contract may be debtor but he can not benefit from the dispute
on the meaning of provisions or words in a contract since he should have prepared the contract
free of any defect. He cannot benefit from his own fault. Moreover a stipulator of general terms,
models or forms is mostly monopoly supplier or big companies that greatly influence the
bargaining process. Most probably the other party did not have an alternative except entering
(adhering) to the stipulation. So interpreting such contract against the stipulator even when he is a
debtor has customer protection in mind.

Performances of Contracts (Art. 1740-1762)

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Performance of contract means fulfilling one’s own obligation as agreed. If the obligation is to
“do”, doing what was provided in the contract exactly in the same way as provided, if the
obligation is “not to do” refraining from doing what is forbidden by contract and if the obligation
is to “give” delivering the thing with its accessories on the agreed date and place is called
performance of a contract.

So the major questions during performance are who performs, a contract, to whom should contract
be performed, what should be performed, when and where should it be performed.

Who performs Contract (Art. 1740)

A contract can be performed by the debtor, his agent or by person authorized by court or law (Art.
1740(2). The persons authorized by law and person authorized by court. Sometimes performance
of a contract by a third party who is not authorized by debtor, by court or by law requires
recognition of the performance by the person (debtor) for whose benefit the obligation is
performed by unauthorized person.

However; the creditor may sometimes insist that debtor himself should perform the obligation
(Art. 1740(1). This is when the contract or law expressly provides that the debtor shall perform the
contract personally. For example Ethiopian labor law provides that the employee should perform
the contract personally. So, if certain construction company employs a manger he cannot authorize
his son or brother to carry out the work; the company can refuse to accept the manager’s son or
brother or any other person.

Moreover; the second case where personal performance becomes necessary is when the creditor
proves that personal performance is essential to him. The creditor can be able to prove such only
when the obligation is obligation to “do” of a professional nature or art. For example, a lawyer, or
a doctor can not authorize a duty which he himself agreed to do. Moreover; a musicians, painters,

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Poet, actor, dancer etc can not authorize someone to perform their artistic obligation or such
obligations connected with them personally.

Generally creditor should accept performance either from the debtor, his agent or person
authorized by the court of law unless he proves that personal performance of the contract is
essential to him or the contract or the law expressly provides personal performance.

To whom should contract be performed (Art. 1741-1744)

Payment should normally be made to the creditor or his agent (Art. 1741). However; payment may
be made to a tutor, liquidator, or trustee (Art. 1741). If the creditor is a minor or judicially
interdicted person payment should not be made to such creditor (Art. 1742). E.g. Abebe, a minor,
bought bicycle for birr 1500 from Beshadu. Beshadu shall not deliver the bicycle; to Abebe; she
should rather deliver to his tutor.

Fungible Goods (Art. 1747–1748).

Fungible goods are goods that are indicated in the contract by using generic terms such as pasta,
teff, wheat, barely. In such case since the thing is not expressly indicated in the contract, the
contract is interpreted in favor of the debtor (Art. 1738 (1) and the debtor can freely determine its
quality (Art. 1747). However, the quality should not be less than the average (Art.1747 (2). For
example, if a seller agreed to sell five hundred quintals of teff. He can deliver teff of average
quality. Delivery of insufficient quantity or quality (when the quality was already agreed up on
does not necessarily lead to the cancellation of the contract unless it is declared to be fundamental
breach of contract

Money Debts (Art. 1749–1751)

If the debt is money debt, payment should be mode in local currency of place of payment (Art.
1749 (1). For example if place of payment is in USA payment should made in US Dollar. This is
for two reasons. Firstly, the debtor may not be able to get the foreign currency in the place of
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performance. For example, in Ethiopia only importers are allowed to purchase foreign currency in
the market. Secondly it may be illegal to possess foreign currency for more than a certain time
limit.

Non-performance of a contract
As stated under Article 1731 (1), a contract lawfully formed binds the parties as if it were law,
which means that the parties shall perform (discharge) their obligations according to their
contract and the law. The rules under Articles 1740-1762 regulate how performance should be
made. If performance is made according to the contract and the law, it is deemed valid and
releases a party (the debtor) from his obligation.

Thus, non-performance refers to party’s failure to perform contractual obligations in conformity

with the terms of the contract and the law. It is also called breach of contract. This failure/breach
may be total, where a party totally fails to perform the terms of contract. It may also be partial,
where a party has performed his/her obligations partially. It may also relate to delay in
performance. Performance at a place other than the place agreed (place fixed by law) also
constitutes non-performance. Delivering a thing that does not conform to the contract or
delivering a defective thing also amount to breach of contract. Generally any deviation by a
party from the terms of the contract amounts to non-performance.

It is clear that breach by one party affects the interest of the other party, which usually is referred
to as the “Victim party”. Thus, it is logical to provide a solution/remedy for the party affected by
non-performance. As discussed elsewhere, one function of contract law is to enforce contracts.
One way of doing that is to provide remedies for non-performance particularly by sanctioning
failures. Otherwise parties would be reluctant to enter in to a contract.

The legal remedies for non-performance protect the interest of the party that is affected by non-
performance. The interest that is affected by non-performance of the contract is the benefit,

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which could have been gained, had the contract been performed. Accordingly, the remedies are
supposed to put the victim party in the position he would have been had the contract been
performed. As such, in most legal systems, the law of contract generally recognizes three
remedies. The first one is the enforcement of the contract. This remedy is designed to satisfy the
victim party by enforcing the terms of the contract. It may be done either by compelling the
debtor (failing party) to perform his/her obligations.

The second remedy available to the creditor is cancellation of the contract. This may take place
either by court judgment (judicial cancellation) or unilateral act of the victim party. Unilateral
cancellation applies in exceptional circumstances. In all other cases, the victim party must apply
to the court for declaration of cancellation and it is the court that has the only and ultimate power
to declare cancellation. The effect of cancellation is to put the parties into the position which
they would have existed, had the contract not been made. Thus, the Victim party can claim back
what he has paid or delivered. In addition to this, compensation claim for the damage or loss
incurred as a result of non-performance may be asked. This remedy may be claimed in addition
to either of the above remedies or independently.

In applying any of or a combination of these remedies, one should take in to account not only the
interest of the creditor (victim party) but also that of the debtor (failing party), for example the
debtor can not be required to pay excessive compensation, or his liberty be deprived.

In addition, the law generally requires the party affected due to non-performance to fulfill certain
criteria before resorting to the remedies of non-performance. The crucial prerequisite is that the
victim party shall give notice to the debtor, demanding the later to perform his/her obligations
within a reasonable time. The purpose is to obtain voluntary performance before going to courts.
Of course, there are certain circumstances, where giving of notice is not necessary.

1. Where party doses not carry out his obligations under the contract, the other party may,
according to the circumstance of the case, require enforcement of the contract or the
cancellation of the contract or in certain cases may he may cancel the contract.

19
 2. He may in addition require that the damage caused to him by nonperformance be made
good.

The word forced performance implies the compelling of the debtor to discharge his obligation. It
refers to performance directly imposed on the debtor through the execution process. Thus, it
takes place through court order/judgment. However, it is important to note that the court may not
order forced performance merely because the creditor has requested. Note that it is the court,
which has the power to order forced/specific performance. Article 1776 provides the conditions
for ordering forced/specific performance.

Specific performance of a contract shall not be ordered unless it is of special interest to

the party requiring it and the contract can be enforced without affecting the personal
liberty of the debtor.

The following are cumulative requirements for the application of forced performance
(1) The creditor’s special interest, and
(2) The preservation of the debtor’s personal liberty.

Law of agency
The law of agency is one type of private law designed to regulate legal relations between and
among the principal, his agent, and third parties.

Justification: One may not be able to perform a given task by him self for several reasons or may
not be at different places at the same moment to perform certain act. Hence if a task has to be
carried in his absence or with out his involvement, there has to be some other individual who can
under take the task on his behalf that is why agency relationship is justified (necessary)

And some times the purpose of the agency and the need to employ agents could be to perform
certain tasks which their principals have neither time; neither knowledge nor experience to
perform by themselves.

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Why Agency?
Because it;
 Reduces the cost of contracting especially when the number of contracting parties is
too many.
 The principal may reduce cost of spatial and cultural distances, the need to a quire
expertise, and the in convenience of having to deal
 Legal personalities do not have mental capabilities to analyze the cost and benefit of
their transaction because they don’t have minds like human beings. Hence, they need
an agent to act on behalf of them
 To perform a legal person’s obligations and enjoy their right, it is only possible
through a human agent.
 In some cases capacity is required in order to perform a juridical act. Certain category
of people like minors (below the age of 18) and Judicially interdicted people are
prohibited form performing juridical acts. Thus an agent is required.
Obviously, an agent is a person who has the authority to act in the name and on behalf of another
person called the principal. In other words, it is an authority given to the agent to perform
juridical acts as a medium of intermediation with another person called the third party. By
juridical act, we mean acts having effects/enforcement before the law. These acts must be
performed with in the scope of the agent’s authority to bind the principal directly. That means
the rights and obligations of the contract are that of the principal and the third party. The agent is
there only to facilitate the formation of the contract and hence cannot be held liable for the non-
performance by both the principal and the third party.

Sources of agency
A. Authority derived from a contract.
Agency, which is derived from a contractual relationship, is the most usual kind of agency.
Accordingly for many authors consent is the basis of the law of agency and it explains why the
agent can represent the principal.
Article 2199 of the civil code
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 ‘’Agency is a contract where by 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’’
B. Authority by judicial act
An authority to act on behalf of another may emanate form the court’s decision. Court, up on
involvements of some conditions, may appoint some other person to do activities pertaining to
the other. The provisions governing court authorization are provided as follows.
Article 2253 Principle
The authority to do an act or acts of certain kind on behalf of another may be given
by the court to a person here in after called a curator.
C. apparent authority

One such authority is the case of an agent who by the factual circumstances of his relation with
the principal acts as if he was authorized to perform certain acts for the benefit of the latter. And
the principal by his conduct acknowledges another person’s by not refusing or by taking fruits of
the performance from that person’s act.

Formation of agency contract

 when the contract of agency is signed
 implied agreement with out having a written contract

Article 2189(1) of the civil code provides indicators of an agency relationship to become biding
against the contracting parties. These are requirements for a contract concluded by one party
(through an agent) to be binding between the third party and the other contracting party;
 There must be an agency relation ship (contractual, apparent, or implied)
 The agent must have acted in the name of the principal and
 The agent must have acted with in his scope of power.
See the following chart to have an impression of formation and sources of agency (authority)
Authority of the Agent

Actual Authority Apparent

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 Authority

Expressed implied

Unauthorized Agency or agency of necessity

The emergency power of agency may emanate from a law. And this is the case where the
principal has some manageable interest but fails to manage it. This time in the absence of
authorization, some other person may undertake activities bearing legal effects pertaining to
the principal to avoid losses the latter may encounter. Such kind of agency is referred to as
agency of necessity (unauthorized agency)

Ratification
Some times an agent after the lapse of his power or acts in an area which he does not have power
to or acted even if he was not supposed to act, then ratification is required from the principal to
bind him self. With out ratification the principal can not be bound to perform the contract.
Exceptionally though the principal may be forced to ratify the act.

Extinction of agency contract

The concept of extinction of contracts, in general, signifies the coming into an end of obligation
that was undercharged till the moment of extinction. In other words, extinction extinguishes the
obligations of any of the parties who possesses as a debtor in the contract by rendering such
obligation non-existent as of the period of time the extinction takes effect. The following are
more precise reasons of extinction of contract of agency
 Death
 Revocation
 Repudiation

Scope of authority
In general agency can be categorized in to general and special based on the scope of power of
agency. Such a classification is very important in view of the tripartite relationship that the law

23
of agency envisages. That is the principal, agent and third party relationship since an agent binds
his principal for his dealing s with third parties with in the scope of powers rendered to him by
the

General Power
Article 2203 of the civil code determines the general power of the agent that is to perform acts of
Management the term is often critical and very difficult to determine. Article 2204 of the civil
code enumerates what acts of management are. Principal, it is necessary that such power be
determined for all parties concerned.

Special Authority
When we say special (specific) authorization, we are to mean that authority given in clear or
plain terms and which always be for a particular operation. There are various acts, which an
agent cannot perform unless he has been expressly authorized to do so. Such acts are
encapsulated under art 2205 of the civil code: theses are
 Alienation or mortgage of real estate
 Investment of capitals
 Signing of bills of exchange
 Effective settlement
 Consenting to arbitration
 Making donations
 Bringing or defending an action
Under the above cases, specific authorization is a required for what the agent undertakes to bind
the principal. If the agent performs any one of the listed activities with out securing specific
authorization so to act, he will personally be liable to third parties unless the principal ratifies the
act.
Duties of the Agent
Duties of the agent to a contract of agency arise either from agreement (express or implied) or
from law (fiduciary nature of agency relationship).

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Performance
Basically where the agency is contractual the agent is bound to perform what he has undertaken
to perform. This amounts to the duty to carry out the contract which the agent has made with the
principal. Failure of the principal to carry out his obligations as agreed is non-performance and
results in the liability of the agent toward the principal.
 Duty to protect the rights of the principal from conflicting interests.
 Contract with third parties
 Contracting with Oneself
 Good faith required of the agent.
 Diligence Required from an Agent
 Duty to Account
 Duty of Non- delegation

Duties of the Principal

 Remuneration
 Contractual remuneration
 Duty to Advance Money
 Duty to reimburse outlays and Experts
 Duty to release the agent from liabilities and damages
 Set – off: Conditional to the principal
 Agent’s Lien Right

Contract of sale
Law of sales is a branch of business law that regulates the relationship between the buyer and
seller of goods. It is a collection or rules pertaining to formation, performance and breach and
remedies of breach of contract of sale. It imposes unitary and common duties and rights on the
buyers and sellers the breach of which gives rise to remedy. When the dispute between buyer and
seller resulted in litigation before the court of law, the courts applies law of sales and when
appropriate, another branch of law to adjudicate the dispute. Law of sales is contained in the civil
code of Ethiopia under Book V, Title XV from article 2266 to 2407.

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Principally the subject matter of sale is “goods”. Goods are things, which can be appropriated by
human beings like, chair, desk, etc.

General definition of contract of sale:

So far there is no universally accepted definition of sales contract thus the definition of sales
contract differ form one system of law to another system of law. For example, the roman law
which is considered to be the origin of civil law legal system, for defined contract of sales as "a
contract by which one person becomes bound to deliver a subject to another with the view of
transferring the property in consideration of money" this definition seems to include the basic
elements. Accordingly sales contract shall be
a. A contract
b. Include a thing as a subject of sale
c. Consideration expressed in money
d. Deliver with the purpose of transferring ownership
According the Roman law in the absence of the elements the existence of sales contract might be
questioned. The French law being similar with the Roman law has also defined sales similarly as:
"Sale is a contract by which the one binds himself to deliver a thing and the other to pay for it"
Even though this definition has included the three elements (party, obligation to deliver a thing
and obligation to pay for it), obligation of transferring ownership is for example excluded.

Definition of contract of sales in Ethiopia

Sale is one way by which rights are assigned under the Civil Code of Ethiopia. There are
different ways by which rights are assigned in addition to contract of sale. Sale has been defined
under Article 2266 of the civil code as ‘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’.

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The essential characteristic of sale lies in the obligation of the seller to deliver and transfer
ownership and in the obligation of the buyer to pay a price. Other obligations of the parties are
consequential in the sense that they are implied into the contract (by law), unless clearly
excluded by the agreement of the parties. Contractual obligations are different from one another
both in their nature and effect.

Among the elements of the definition of sale is its being contract is one. Contract of sale is a
special kind of contract. Like any other contract, the parties should comply with the essential
conditions for the validity of contracts in general. Thus the parties must be capable, that is they
should not be minors, insane and infirm, judicially interdicted person, or legally interdicted
person.

Besides, there must be an offer and acceptance for the formation of sales contract. The consent of
the parties, which is expressed through offer and acceptance, should also be free from defect
(Mistake, fraud duress, unconscionable nature of the contract undue influence) which render
contract of sale invalid. The obligations of both the buyer and the seller must be defined in the
contract and the obligation must be lawful, moral and possible. If the parties to the contract of
sale fail to comply with these requirements the contract would be invalid or cancelled as the case
may be.

Obligations of the seller

 Deliver the thing under the sale contract to the buyer according to the amount, time,
quality, and place agreed
 Transfer ownership of the thing to the buyer
 Provide Warranty against certain defects
 Handling over every documents relating to the installation, proper functioning or transfer
of ownership of the thing
 Provide insurance to the goods sold (if obliged to)
 The seller shall, in addition, be liable to any other obligation imposed by the contract of
sale

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  Where the buyer is late in taking delivery, Preserve the thing at the expense of the buyer

Obligations of the buyer

 Pay the price of the thing
 Cooperate and take delivery of the thing at the time and place of agreement for delivery
 Preserve the thing after delivery to complete performance
 Examine the quality quantity, and capability for normal use of the thing before taking
delivery
 Cover expenses of the contract of sale and expenses of transportation
 Cover expenses of payment and other expenses after delivery
 An increase in customs or other import duties after the making of the sale contract shall
be borne by the buyer , unless the seller contributed to the delay
 Cover expenses of delivery like cost of counting, measuring, weighing

Non-performance of sales contract

Generally non-performance of sales contract is no different from other grounds in contracts
in general. Also in this division, lack of adherence to the terms of the contract of sale or
failure to meet the legal conditions set as part of sales contract constitutes an element of non-
performance.
Non-performance could in particular be explained in terms of;
 Delivering a thing different from the parties agreement
 Delivering a defective object which can not normally perform
 Delayed or mis-placed delivery or
 Failure to cooperate in taking delivery from the buyers part
 Delay in payment or payment for an unauthorized person
Like any thing else and contracts in particular, non-performance has a range of own remedies
from cancellation to forced performance as the case may be provided that respective conditions
and requirements are satisfied.

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International sales
International sales are different from other sales contract in many respects of their features and
more significantly has border crossing nature. The contracting persons are either not identical
nationals by their presence in different jurisdictions or the goods under the contract of sales are
ones which will need carriage from one country to another through the process of international
sales transaction. The international sales involves parties to the contract, who respect the
minimum standards of contract in general, banks with a role of facilitation in payment or
guarantee, insurers, and transportation companies.

The accomplishment of international sales presupposes a sales contract between the seller and
the buyer who has different country destination. After the making of international sales contract,
the buyer who probably has to pay in advance must negotiate with a domestic commercial bank
to secure a Letter of Credit (LC), sometimes called Documentary Credit. The bank for whose
client produced the letter of credit would create an arrangement with a resident bank in the
seller’s country so that the seller takes part of his payment on time. Then the seller dispatches the
goods under sale to the buyer’s country via ships, cargo aeroplanes, or, if possible, using
vehicles. Should the process goes clean and as planned, the buyer receives his products from an
international supplier, the remaining percentage of seller’s money shall be released by the same
procedure as the first. Following the delivery and payment, the banks who facilitated payment
and guarantee will settle their claims finally.

If the contract of sales confronts with any shortcomings of performance or a case of non-
performance prevails, dispute settlement mechanisms are already devised through the course of
international arbitration to international courts.

Business and traders

Businesses are operated by persons, whether physical or juridical. However, sole businesses or
sole proprietorships can only be run by physical persons. Physical persons who operate a sole
business are referred to as traders. Particularly, Article 5 defines the trader. This provision has

29
two key elements: the general condition and the special condition. The general condition consists
in the existence of an enterprise or business, of a profession, and the goal of realizing profits
while the special condition is such that the person carries out any of the activities enumerated in
article 5 as her business object. Traders, pursuant to Article 5, are persons who professionally
and for carry on any of the following activities:

(1) Purchase of movables and immovable with a view to re-selling them either as they are or
after alteration or adaptation;
(2) Purchase of movables with a view to letting them for hire;
(3) Warehousing activities as defined in Art.2806 of the Civil Code;
(4) Exploitation of mines, including prospecting for and working of mineral oils;
(5) Exploitation of quarries not by handicraftsmen;
(6) Exploitation of salt pans;
(7) Conversion and adaptation of chattels, such as foodstuffs, raw materials or semi-finished
products not by handicraftsmen;
(8) Building, repairing, maintaining, cleaning, painting or dyeing movables not by
handicraftsmen;
(9) Embanking, leveling, trenching or draining carried out for a third party not by
handicraftsmen;
(10) Carriage of goods or persons not by handicraftsmen;
(11) Printing and engraving and works connected with photography or cinematography not
by handicraftsmen;
(12) Capturing, distributing and supplying water:
(13) Producing, distributing and supplying electricity, gas, compressed air including heating
and cooling;
(14) Operating places of entertainment or radio or television stations;
(15) Operating hotels, restaurants, bars, cafes, inns, hair- dressing establishments not
operated by handicraftsmen and public baths;
(16) Publishing in whatever form, and in particular by means of printing, engraving,
photography or recording;

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 (17) Operating news and information services;
(18) Operating travel and publicity agencies;
(19) Operating business as an agent, broker, stock-broker or commercial agent;
(20) Operating a banking and money changing business;
(21) Operating insurance business

According to the general condition, a physical person becomes a trader if and only if operates a
business/enterprise, engaged in such business professionally, and for gain. The general
condition’s requirement of the existence of a business has not been made as explicit as in the
unofficial French master-text as the remaining two. Despite its inexplicitness, the business
requirement can be read into Article 5 without difficulty. This is so for two reasons. First, it is a
priori. One cannot be a trader without operating a business or an enterprise. Second, though it
has been contended that the business requirement is implicit in the fact of being trader, it is
submitted that a conjunctive reading of Articles 125(1) and 5 render it explicit. Article 125(1)
stipulates that “Every trader operates a business.” From this, it appears that there is no trader who
does not operate a business.

The second requirement of the general condition says that one who operates a business has to do
so professionally. The profession requirement refers to something different from the standard
lexical meaning of the word “profession” or “professional”. One who operates a business as a par
time or for leisure does not count as a trader.

The third requirement tells us that one who starts a business and engages in such business
professionally does not become a trader unless made for profit.

Legal Definition of business

Article 124 of the Commercial Code defines business as “an incorporeal movable consisting of
all movable property brought together and organised for the purpose of carrying out any of the
commercial activities specified in Art.5 of this Code.” Thus, the ultimate essence or quality of

31
any business, as can be gathered from the above definitional provision, is it’s in corporeality
irrespective of the existence of corporeal elements.
Elements of business
A business consists mainly of goodwill and may consist of other incorporeal elements such as:
(a) the trade-name;
(b) the special designation under which the trade is carried on;
(c) the right to lease the premises in which the trade is carried on;
(d) patents or copyrights;
(e) Such special rights as attached to the business itself and not to the trader.

The term “business” embraces tangible and intangible assets, including tools, equipments, raw
materials, goods in stock, good will, trade name, trade mark, patent, copy right, and the right to
lease of the premises. But, immovable properties cannot form part of the business. Hence, the
land or buildings which form of the business premises and the fixtures on such premises are no
part of the business, even though they are owned by the trader himself.

Trade names and trade marks

A trade name, also known as a trading name or a business name, is the name which a business
trades under for commercial purposes, although the business could have another registered legal
name used for contracts and other formal situations. It is the main factor that represents and
identifies a business establishment in all its interactions with third parties or any thing else with
legal effect. Trade names shall be clear, precise, in line with public moral, legal, and
distinguishable from an already registered trade name. Any business, especially commercial
business entity, can not have legitimate position with out having trade name in other words no
commerce exists with out trade name. For instance, Pharmaceuticals have trade names (e.g.
"Aspirin"), often not similar to their chemical names ("acetylsalicylic acid"). Trading names are
sometimes registered as trademarks or are regarded as brands.

A trademark or trade mark, identified by the symbols ™ and ®, or mark is a distinctive sign or
indicator used by an individual, business organization or other legal entity to identify that the

32
products and/or services to consumers. The trademark appears to have originated from a unique
source and serves to distinguish products or services from those of other entities identical or
similar types of products. A trademark is a type of intellectual property, and typically a name,
word, phrase, logo, symbol, design, image, or a combination of these elements. The owner of a
registered trademark may commence legal proceedings for trademark infringement when used by
another to prevent unauthorized use of that trademark. However, registration is not required. The
owner of a trademark may also file suit, but an unregistered mark may only be protectable within
the geographical area within which it has been used or in geographical areas into which it may be
reasonably expected to expand.

The term trademark is also used informally to refer to any distinguishing attribute by which an
individual is readily identified, such as the well known characteristics of celebrities. When a
trademark is used in relation to services rather than products, it may sometimes be called a
service mark, particularly in the United States.

Accounts and entries

The identification of entries in the Retail, Wholesale, Service, and Manufacturing sectors relies
heavily on administrative data received from the actual sales department of the same business
and day -to-day activities or permanent expenditures of the business which generally show the
incomes received, receivables, liabilities or any thing identifiable as credit and debts of the
business. The confidentiality and authorized use of this information is strictly regulated by law.
The data received includes source of income generation including name and address of a client,
industry classification, quarterly and annual payroll, number of employees, annual sales or
receipts, and company affiliation. These data are the basis for construction and maintenance of
the business’s financial viability, profit or loss margin, income statement, and would be used as
market forecast and capability measurement. The entry contains all known monetary information
relating to the business.

In accountancy, an account is a label used for recording and reporting a quantity of almost
anything. Most often it is a record of an amount of money owned or owed by or to a particular

33
person or entity, or allocated to a particular purpose. It may represent amounts of money that
have actually acquired, or it may represent an estimate of the values of assets, or it may be a
combination both.

Types of accounts
1. Asset accounts: represent the different types of economic resources owned by a business,
common examples of Asset accounts are cash, cash in bank, building, inventory, prepaid
rent, goodwill, accounts receivable
2. Liability accounts: represent the different types of economic obligations by a business,
such as accounts payable, bank loan, bonds payable, accrued interest.
3. Equity accounts: represent the residual equity of a business (after deducting all the
liabilities from Assets) including Retained Earnings and Appropriations.
4. Revenue or income accounts: represent the company's gross earnings and common
examples include Sales, Service revenue and Interest Income.
5. Expense accounts: represent the company's expenditures to enable itself to operate.
Common examples are electricity and water, rentals, depreciation, doubtful accounts,
interest, insurance.
6. Contra-accounts: from the term meaning to deduct, the value of which are opposite the
5 above mentioned types of accounts. For instance, a contra-asset account is
Accumulated depreciation. This label represents deductions to a relatively permanent
asset like Building.

Account represents financial and non-financial transactions of a firm, to know the total outcome
of the investment made by investors, traders.

Business organizations
Article 210 of the Commercial Code defines a business organization as “any association arising
out of a partnership agreement.” A partnership agreement, pursuant to Article 211 of the Code, is
“contracts where by two or more persons who intend to join together and to cooperate undertake

34
to bring together contribution for the purpose of carrying out activities of an economic nature
and of participating in the profits and losses.

In a free market economy, business organizations are familiar parts of every day life. Business
organizations compose the supermarkets from which we buy our foods and giant companies
capable of changing a given country’s socio-political and economic surfaces. Supply of water,
gas, and petroleum products we depend on are made possible through business organizations.
Publishers of books, newspapers we read, and communication devices in market, production and
distribution of goods and services is directly or indirectly related to business organizations. We
deal with them so often as consumers of their products and services that the image which the
phrase “business organizations” brings to mind is usually of entity concerned with marketing and
collecting payments for products and services which they have offered.

Features of business organizations

The first feature distinguishes the business organization from the business owned by one man or
sole proprietorship. Traders can do business as he pleases with its assets, since he is personally
liable for debts and obligations incurred in connection with the business, no special rules are
needed to protect its creditors beyond the ordinary provisions of the law.

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

35
Classification of Business Organizations
Business organizations may be classified into two basic types according to their general and
common characteristics despite significant differences between and among them. These two
basic groups are partnerships and companies.
Partnerships
A partnership is an aggregate or collection of individual members. Thus, in a partnership kind of
business organization personality of partners is more dominant. Insofar as intimate personal
collaboration is expected of each partner, persons who know each other very closely may enter
into a partnership agreement giving rise to a partnership firm. Consequently, partnerships are
suitable for small business involving a relationship of mutual trust and confidence.

Companies
Company is an aggregate or collection of shares or capital, capital usually taken as the only
important factor for the company’s constitution. Thus, the company may own property, make
contracts, and sue and be sued under its name since it has legal personality. Also, company has
its own management team and administration structure which is entirely distinct from its
members. Death, insolvency, or incapability of a shareholder does not affect its existence.

Forms of Business Organizations

Though the main classification is between partnerships and companies, partnerships can be
further broken down into four legal forms: ordinary partnership, joint venture, general
partnership, and limited partnership. Companies comprise of two legal forms, namely, Share
Company and private limited company. But in general apart from the previous classification,
there are six legal forms (types) of business organizations

Article 212 of the Commercial Code:

1. Ordinary partnership
2. Joint venture
3. General partnership
4. Limited partnership
5. Share Company
6. Private limited company
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Definition and nature of negotiable instruments

A negotiable instrument is a specialized type of document for the payment of money that is
unconditional and capable of transfer by simple and easy negotiation. Common examples include
cheques, banknotes (paper money), and commercial paper.

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.

Kinds of negotiable instruments

1. Promissory Note
2. Certificate of Deposit
3. Bill of Exchange
4. Transferable Securities
 Bond
 Debentures
 Life insurance policy
 Treasury bill
5. Certificate of Deposit
6. Bearer Share Certificates

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