Note On Busines Law One To Three

Note on Business Law Mohammed B
Chapter one
Introduction to business law
Learning objectives
After completing this unit you will be able to:
 Understand the meaning and nature of law;

 Describe sources functions and classification of laws; and
 Know different types and classification of laws.
1.1 Meaning and nature of law
1.1.1 Meaning of law
There is no ready-made definition for law until now. Scholars of law adopted various definitions. Let us see
two different definitions of them.
According to the Backs law dictionary, the first definition adopted by Professor Hugh, law is a scheme of
social control, which by means of legal capacities backed and sanctioned by legal redress, delimits personal
liberty for the protection of social interest.
Social interest is a need of an individual or a group presentation of the peace the protection of individuals and
institution from encroachment by others, and pursuit of economic, social interest recognized and given
protection by the law. The second definitions of law formulated by the American law institute- Law is the
body of principles, standards and rules, which the courts of a particular state apply in decision of
controversies brought before them.
1.1.2 Characteristics of law
Each legal system in the world should have among the other things the following characteristics
 Prescribe general rules of conduct

 should not be retroactive/non-retroactivity of criminal laws/
 should provide clear standards of decision
 should be given obedience by citizens
1.2 Sources of law
An enforceable human conduct / a law/ may arise from repetition of the conduct, or from enactment of
the rule. The predecessors of law include the custom the religious and ethical beliefs. As society grew
more complex, the state emerged and law replaced custom what then may regard as source of law.
A custom is the habitual repletion of certain conduct. Where that conduct to hold consider, its observance
may ripen into a customary law. Depending on whether a conduct’s recurrence originated primarily with the
people, with the judges or with contract-makers, the customary rules eventually arising there from are
 popular
 judicial
 contractual
The following can be taken as the basic sources of law
1.2.1 Legislative sources
Legislation in the modern time especially in the continental law systems and in Ethiopia, are the cardinal
source of laws. Such laws could be Laws enacted by the pertinent law making body of a state. The law
making organ is defined by the supreme law of the state or the constitution. For example the Federal
Democratic Constitution of Ethiopia addresses legislative process and power in articles 79-92. The laws in
general are known as statutes.
1.2.2 Judicial sources
Judicial decisions include judicial treatment of statutes and judicial rulings in situations not governed by
statutes. The typical example is the common law countries following judge-made law.
1.2.3 Administrative sources
Laws and regulations published by government agencies, which have the force of law.
1.2.4 Custom
The popular ordinary laws are originated from the people, little by little, through following concordat usages
with the belief that they are binding /opinion necessitates/. For instance certain amount of money or cattle
may be customarily paid in compensation for defined insults or injuries. In Ethiopia there is a host of such
customs. They are not uniform and continuous, but vary from place to place and from time to time. In early
societies custom is the main source of law. In Ethiopia until the era of codification/1957-1965 G.C/
customary laws were highly dominant source of laws.
1.3 Classification of laws
Classification of legal rules is difficult. The border lines between law branches are sometimes blurred.
However imperfect, classification is necessary. Because different principles govern different law
branches, Codification, doctrinal exposition and practice, are all impossible without an orderly
arrangement of subject matter.
1.3.1. Public and private law
I. Public Law
Public law regulates the acts of persons who act in general interest in virtue of a direct or mediate
delegation emanating from the sovereign, while private law regulates the acts of individuals doing by
their own names for their own individual interests.
Public law may also be subdivided into international public law and national/domestic/ laws.
A. International public law
International public law governs primarily relations of equality sovereign states. The legal character of
rules is controversial because of their scarce enforceability.
B. National/domestic/ public law
Which governs primarily, relations of authority between states and subjects. This in return may be
subdivided as follows;
 Constitutional law- which defines the legislative, judicial and executive powers of the state’s
supreme organs. In addition many modern constitutions, including the Ethiopian one, define
the fundamental rights of the people. Constitutional law stands above all other laws.
 Administrative law- concerns the executive branch of government /e.g the ministries,
government officials/. It is recent formation as a distinct branch of law.
 Financial law- concerns the state revenue has its roots in constitutional law. Being distinct
important and coherent it has emerged from administrative law into separate law branch,
which however, is often studied with the public finance branch of economics, because of the
many problems common to both. Ethiopian laws regarding taxes, other state revenue and
budget are found in several NegaritGazetas.
 Penal law- is very distinct branches of public law in spite of doctrines maintain that, for from
being autonomous it merely sanctions basic rights/ of personality, of property…/ expressed in
other laws through defining and punishing their infringements. Penal law is public law branch
concerning state imposed punishments, which safeguard not merely some rights but public
order itself.
II. Private law
There is a distinct nature of private law from that of public law the basic nature is
1. Relations of equality between people of private persons not representing the state or its agencies. /
The private person excluding the public person/. E.g. contracts
2. Certain ordinary relations with the public legal persons themselves. E.g. administrative contracts
supplemented by contracts.
Private law is typically excluded from penal relations/ penal law/. Private law may be subdivided into
international private law and internal/ national/ private law.
A. International private law
Deals with such private legal relations which involve an extra national element / foreigners marriage of
succession, assets abroad etc/ requiring foreign and national laws. Although involving extra-national
elements, these choices of law rules are enacted by the national governments and are known as conflict of
laws.
B. Internal private law
It governs private relations, not containing essential foreign elements. In Ethiopia it would be governing
all private cases were it not for the fact that our courts sometimes choose to apply foreign laws in certain
situations of choice of law. Internal /national/ private law can be subdivided as follows:
 Civil law: it is the ordinary common law of the people. It contains store of legal principles and
concepts, which also serve other law branches. For example first modern civil code of Ethiopia was
enacted in 1960 G.c embraces the majority of code law and is so vast that its division and
subdivisions may be treated as separate law subjects. The five books of the civil code gear on
persons, family and succession, goods/property/, obligations and special contracts.
 Civil procedure law: provides the means for enforcing civil law. In view of the wide scope and impact
of civil procedure law, it is increasingly as an important field of study. The Ethiopian civil procedure
code was enacted in 1965.
 Commercial law: deals with merchants and commerce. Although formally apart from the civil law
through being enacted in separate code, commercial law is closely related to civil law. Commercial
law cannot be really understood and properly applied without prior knowledge of civil law.
1.3.2 Civil versus Criminal Law
Civil law is a branch of law that deals with civil matters as opposed to criminal matters. In Ethiopia, we have a
civil law codified in 1960, which is known as Civil Code. On the other hand, criminal law is a form of public
law that imposes duties on persons and specifies that any violation of those duties is wrong not only to the
individuals who are immediate victims but also the public at large. Today we have a criminal law enacted in
2004 which is a revision of the 1957 Penal Code of Ethiopia.
Civil law and criminal law can be distinguished based on two grounds.
 Sanction: If the defendant loses a civil case, the sanction against the defendant is generally monetary.
However, a defendant, who loses a criminal case can be fined, but also can be imprisoned or even
executed.
 Standard of Proof: In a criminal case, the state has the responsibility to prove beyond reasonable
doubt that the defendant is guilty while in a civil case, the plaintiff tries to prove by a preponderance
of the evidence that the defendant was responsible for a civil wrong.
1.3.3 Substantive versus Procedural Law
Substantive law provides the rights and obligations of citizens. On the other hand, procedural law provides
the procedures and mechanisms of enforcing the rights and obligations, which are provided in substantive
law. In Ethiopia, there are mainly two procedural codes: The 1965 Civil Procedure Code of Ethiopia and the
1961 Criminal Procedure Code of Ethiopia.
1.4 Hierarchy of laws
Hierarchy of laws is coordinated arrangement of laws among which superior and subordinate relationship is
manifested as direct reflection of power order in the law-making organ.
Laws Law making organs
Constitution people
Proclamation parliament
Regulation executive organ
Laws which are made by the superior organs are superior and those which are made by subordinate organs
are subordinate.
In most legal systems the constitution stands at the top of the hierarchy of laws. Primary legislations come
and subordinate laws/ executive laws/ stand next below the primary laws.
1.4 Function of Laws
The much known functions of law can be summarized as follows:
 laws as a tool for preservation of peace and order

 laws as platform of human co-operation
 laws as instrument of domination
 laws as mechanism for human engineering
 laws as an instrument to administer justice
Review questions
Answer the following questions

1. What is the meaning of law?
2. Identify the difference between law and custom
3. What is the necessity of law in one society?
4. Prepare a chart that shows classification of laws
5. What are legislations? Put the hierarchy of laws in a chart
References
 Rene David and John E. C. Brierley, Major Legal Systems in the World today An
Introduction to the Comparative Study of Law
 Vago, Steven. Law and Society (7th Ed), New Jersey, 2003.
 Biset Beyene, Introductory note on law in general, (unpublished)
Chapter two
Law of persons
This Unit concerns itself with the law of persons. It is only persons who can be parties to a legal relationship.
For instance, only persons can be parties to a contract. In later Units we will be considering such legal
relationships as contracts, sale, agency, insurance etc. As a result it becomes necessary to commence the
discussion by considering rules concerning persons who can be parties to such relations. With this objective
in view, the Unit proceeds with a definition of the term persons. It also deals with rules concerning
commencement of personality in natural and artificial persons and also the attributes or characteristic features
of the latter.
Objectives:
At the end of this chapter students are expected to be able to:
 Define person;
 contrast physical and juridical persons;
 explain the beginning of physical personality;
 identify the grounds of incapacity; and
 identify the grounds of termination of personality
2.1 Meaning of Legal Person
In ordinary language the term person refers to individual human being. However, in the field of law, the term
person refers to all beings capable of having rights and duties. Thus, the term person encompasses all beings
bearing rights and duties.
There can be human beings who are not considered as persons or holders of rights and there can be persons
or holders of rights and duties who are not human beings. Such was the case for slaves in Roman law, monks
during the Middle Ages, or people sentenced to civil death. Though slaves and monks are human beings, they
did not enjoy rights and were not bound with duties. On the other hand, personality may be granted for an
unborn child who is not yet a full human being (See article 2 of the civil code).
Basically, there are two kinds of persons:
1. physical (natural) persons- It refers to human being

2. Judicial (artificial) persons- Legal persons include beings, which are given rights and duties by the
operation of the law. They are called artificial persons cause of the simple reason that they are
considered as persons with the recognition of the law. They are not actual human beings. They
include associations, share companies, private limited companies, etc. Judicial persons are also
referred to as legal, fictitious, and moral persons.
2.2 Commencement of Personality in Natural Persons
Article 1 of the Civil Code provides that “The human person is a subject of rights from its birth to its death.”
Thus, in the case of human beings, personality commences or starts at the moment of birth. In other words, a
human being becomes capable of having rights and duties from the moment of birth. It is contestable when a
child is considered to be born. Does it refer to the separation of the child from his mother’s womb? Is it the
beginning of the contraction of the womb? Is it the total cutting of the umbilical cord? Reflect your stands.
Having these questions in mind let’s proceed to other discussions.
In some cases, birth is not by itself a satisfactory criterion for determining the granting of physical
personality. A merely conceived child might be considered as a person when its interest so demands. The
interest is usually, if not always, connected to the matter of succession. A typical example is a father dying
while his wife is expecting a child. The property of the deceased father opens for succession before birth and,
the conceived child, not being a person, as he is not yet born, is not taken in to account in the succession of
the property of his father. If we were to apply the principle that personality commences at the moment of
birth the unborn child is not a person. Thus, a conceived child whose father dies before its birth would not be
entitled to the property of his father as he was not yet born when the succession of his father opened. This
would mean that the child would be penalized twice: by the death of his father and by preventing him to
inherit the property of his father.
This shows the application of the rule that personality commences at the moment of birth does not protect the
interest of the unborn or the conceived child. Thus, this makes it necessary to provide an exception to the
general rule laid under Article 1. This exception provided under Article 2 reads:
“A child merely conceived shall be considered born whenever his interest so demands provided he is born
alive and viable."
Therefore, personality is granted to an unborn or merely conceived child up on the fulfillment of three
conditions:
i) the interest of the child justifies the grant of personality;
ii) the child is born alive; and
iii) the child must be born viable.
The interest of the child is said to justify the grant of personality only where the advantages outweigh the
duties or the inconveniences. For instance, it would be in the interest of a conceived child to be an heir to
succession of which the assets would, by far, exceed the liabilities. He would be a subject of both rights and
duties. However, being considered as a person would be beneficial for him.
Secondly, the child must also be born alive. A child dead in his mother's womb will never be considered as
having had personality.
Lastly, the child must be born viable. Viability means the aptitude to live. A child who lives for 48 hours is
presumed to be a person from the moment of his conception. The unborn child is considered as a person from
the moment of his conception onwards.
On the other hand, if a child dies before 48 hours after his birth, there is a presumption that he is not viable
and the first presumption that he was a person from the 300 th day before his birth onwards, cannot operate.
Yet, if the death is not the result of a deficiency in the child's constitution he would be considered viable
though he does not stay for 48 hours.
What are or are not constitutional (natural) deficiencies, in the child's constitution is to be decided on the
basis of medical evidence. There are obvious circumstances where the death does not result from a
constitutional deficiency, e.g. if the child bumped and dies of fracture of the skull, if he is killed in a car
accident, etc. Once it is proved the death is caused as a result of something different from the child's
constitutional deficiency then the child is considered as having been viable even if he died before 48 hours
after his birth.
2.3 Commencement of Personality in Legal (Artificial Persons)
It has been clearly stated above, as a rule, a human being becomes a person or capable of having rights and
duties at the moment of birth. An artificial person such as associations, share companies, private limited
companies become persons or beings capable of having rights and duties only where they fulfill two
conditions: publicity in a newspaper empowered to publish legal notices and registration in the commercial
register. (Article 223 of the Commercial Code) It is only up on publicity and registration that an artificial or
legal entity would have legal existence and attains personality. There are other institutions which acquire
their legal personality by proclamations.
Exercise
How does your institution acquired its personality?
2.4 Attributes of Legal Personality
The following are some the most important features of artificial persons.
i) They can sue and be sued in their own names. Since artificial persons have their own legal
existence distinct from their associates, they can sue and be sued in their own names. Thus, if
someone claims money from a share company, he has to bring action against the partnership and
not the individual shareholders. Likewise if the share company claims debt from others, it has to
bring the action in its own name.
ii) Artificial persons can conclude certain juridical acts like contracts in their own names.
iii) They can administer their property in their own names.

2.4 Capacity
It is the ability to exercise one’s rights and duties by oneself. The law assumes, as a rule, all persons have the
ability to exercise their rights and duties by themselves. But, the law regards some group of persons as
incapable and appoints other to exercise his/her rights on his/her behalf. The civil code generally categorizes
these persons into two: general incapacity and special capacity. Under Ethiopian law, the following group of
persons are said to be incapable.
1. Minors: Persons who have not attained the full age of 18 years.
2. Judicially interdicted persons: Persons who are declared by the court as incapable because of their
mental problem/senility
3. Notoriously insane persons: Persons who are inmate of a hospital or an institution for insane persons
or of a nursing home by reason of their mental condition for the time for which they remains as an
insane and persons who are under special protection-family or other people keep over them a watch
required by their mental condition and where their liberty of moving is restricted.
4. Legally interdicted persons: the court examining the behaviors of the criminal, if assumed
important, may withdraw certain civil rights
5. Foreigner: the law imposes some limitations because of their nationality (there are investment areas
exclusively reserved to Ethiopian citizens and political rights).
6. Persons discharging special functions
2.5 Termination of Physical Personality
When does physical personality ends? In Ethiopian law, there are two basic grounds for termination of
physical personality.
i. Death and
ii. Absence;
It is a court declaration given where a person disappears for more than two years and there is no news on his
whereabouts. On the application of any interested person, where the court is convinced that the person is
likely (but not certainly) to be dead, and declared disappeared person’s absence. Absence has the effect of
death. But unlike death, it does not terminate personality permanently. The counting of time interrupts if any
news is heard on his whereabouts. For instance, assume that Ms.Z has disappeared on September 01, 2012
from her residence city, Axum. If she is seen on June 10, 2014 in Dire Dawa travelling on train, then the
period of limitation is interrupted since there is news on her whereabouts. The counting of period of
limitation starts as a new.
2.6 Termination of legal personality
The legal personality of artificial persons like share companies, associations, NGOs etc shall terminate when
the concerned entity is dissolved or cancelled from registry
Review questions
1. Explain the term “person”?

2. Is unborn child subject of law?
3. What is the purpose of studying law of persons?
4. Distinguish general incapacity and special incapacity?
References
 The Civil Code of the Empire of Ethiopia, Proclamation No 165 /1960M.planiol, treatises on
civil law, volume 1,part 1, louisiania state law state
 Jacques Vander linden, commentaries upon the Ethiopian civil code : the law of physical
persons
 Ethiopian Law of persons, Notes and materials, Elias N. stebek 2007
Chapter Three
Contracts in general
Introduction
Dear student! This unit deals with sources of obligation, the definition of contract, and basic requirements for
the existence of a valid contract. Obligation may be imposed by law or persons or they may be created by
agreement. This unit deals more about obligations created by contracting parties. After identifying the
sources of obligation, the definition of contract shall be given. Next discussion will be on the requirements
for the existence of valid contract. Four basic requirements will be discussed.
For the sake of clarity the unit will be discussed into six sections. The first section deals with the sources of
obligation. Section two defines contract. The next four sections deal with the four basic requirements for the
existence of valid contract. You may observe that one one section leads to the other. Therefore, before
proceeding to a new section, be sure that you have understood the proceeding section.
Objectives
After having completed this unit you will be able to:
 appreciate the difference between legal and contractual obligation

 understand legal obligations have binding effect upon all persons whereas contractual obligations are
binding only on contractual obligations
 identify the two sources of obligations
 define the concept of contract
 understand and explain the four basic requirements for a valid contract
 note that all the basic requirements for a valid contract must exist cumulatively to have a valid
contract
 discuss that all agreements are not contracts
 solve related legal problems
3.1 Sources of obligation
Objectives:
After having completed studying this section, you will be able to:
 distinguish between legal and contractual obligations;

 note that the effect of legal and contractual obligations on persons are not the same; and
 explain obligations resulting from law and those created by agreement
Overview
In this section you will learn about two sources of obligations. In the first sub-sections, you will learn how
some obligations are imposed by law or persons. The second sub-section, introduces you to the obligations
that are created by agreements of the contracting parties. You will learn the difference between obligations
created by agreement and those imposed by law.
Q. do you know the different sources of obligation?
There are two major sources of obligations. The two sources of obligation are the law and contract.
3.1.1 Law as source of obligation
Some obligations are directly imposed on persons by law. These are legal obligations. Legal obligations are
binding or enforceable on all persons. All persons are bound by legal obligations. For example, every person
who earns income (both physical and juridical person) is required to pay taxes. Thus, the obligation to pay
tax is binding to all persons. Legal obligations do not depend on the willingness of persons. Whether you like
it or not, you must respect legal obligations. Obligations to give and military service to defend one’s country
against an external enemy is another example of legal obligation. Obligation of maintenance also has the
same effect. According to article 808 of the civil code, the obligation to maintain your parents in their old
age does not depend on your willingness. It is the law that imposes such obligation.
Article 808-
(1) An obligation to supply maintenance exists between relatives by consanguinity and affinity in the
direct line
(2) An obligation to supply maintenance likewise exists between brothers and sisters born of the same
parents or born of the some father or the same mother.
3.1.2 Contract as source of obligation
Q. What are contractual obligations?
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Contractual obligations or obligations created by agreement are the result of your free will. It is something
undertaken willingly. When you make contractual agreement, a binding obligation is created. For instance, if
you sell something to someone, you willingly undertake to transfer the right that you had on the thing to the
buyer. You transferred your right because you consented or agreed to do so. The buyer pays you because you
willingly bought something thereby consenting to pay. So what is the difference between legal obligations
and contractual obligations? Since contractual obligations are created by agreement, they are binding and
enforceable on the parties who agreed to be bound.
Contractual obligations are not binding on third parties or on non-contracting parties. Two parties on their
agreement cannot impose an obligation on third party.
Activity 1
Answer the following questions in the space provided.
1. What do you understand by the term obligation?

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2. What are the sources of obligation?
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3. The obligation resulting from the two sources are not the same in effect. Explain!
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3.2 Definition of contract
This section deals with definition of contracts. After defining the term the module will address the different
elements in the definition.
After having completed this section you will be able to:
 Define the term contract;

 Identify the different elements in the definition;
 Note that all agreements do not create binding obligations; and
 Discuss the contractual obligations always involve financial interest.
What is contract?
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Contract is one of the important legal devices ever developed to create economic security and stable society.
All persons make contracts in their daily lives. When you go to shop and buy a stationary, when you take
taxi,,, when you go to a restaurant and get service, when you visit your doctor in a clinic, when you rent a
dwelling house etc you are making contracts. Although the government has a power to command obedience,
much of its work is accomplished by means of contract entered voluntarily.
Thus, contract is a binding agreement which is enforceable by law. It is a promise or set of promises for the
breach or violation of which the law gives a remedy. Contract is an agreement intended to produce binding
obligations. An agreement which does not create, vary or extinguish obligation cannot be considered as a
contract.
How does Ethiopian law define a contract?
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Article 1675 of the civil code provides as following:
A contract is an agreement whereby two or more persons as between themselves create, vary or extinguish
obligations of proprietary nature.
This standard definition applies to all types of contracts
3.2.1 Elements in the definition
Q. What are the important elements in the definition?
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I. The first element in the definition is that contract is an agreement. It is something willingly
undertaken. Contract is not something imposed on you. Nobody forces you to make a contract
only if you are willing to do so. Accordingly, a contract is the result of free will.
II. Parties to a contract are always persons. They may be judicial or physical persons.
The number of contracting parties may be two or more persons. Since one cannot make a contract with
himself. There must be at least two parties to a contract. There is no limitation to a maximum number of
parties to a contract. The best example is partnership. Partnership agreement is a contract under article
211 of the commercial code of Ethiopia. There may be hundreds of partners or contracting parties.
Q. what do parties contract to do?
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Parties to a contract create legally binding obligations that had not existed before. The willingly create
legally binding obligations that had no existed before. They willingly create a new legal relationship
between them. All contractual obligations create obligations. If no obligation is created in an agreement,
that agreement is not contractual agreement. Social agreements or agreements for social affairs do not
create obligations enforceable by court of law. That is why say all agreements are not contracts.
The freedom of the parties is not limited to the creation of obligations. After creating obligations,
contracting parties may want to vary (change, modify) some terms of their obligations. They are free to
do so. Obligations varied by two contracting parties may be varied only by those two parties. Nobody
else has that power. According to article 1742(2) of the civil code even courts of law do not have that
power.
III. Two or more persons create obligations only as between themselves, without affecting the interest
of third party. Contracting parities A and B cannot impose obligation on C who is not party to that
agreement.
IV. Parties to a contract create obligation of proprietary nature. It is an obligation to do something or
to give something of value which involves economic interest, financial gain.
Activity
Answer the following questions in the space provided.
1. Define the word contract using your own words.

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2. Identify the important elements in the definition and explain them by your own language.
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3. Is marriage a contract under the definition given in article 1675 of the civil code? Explain.
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3.3 Formation of Contracts
In this section you will learn the essential requirements of a valid contract. Contractual capacity,
consent, object of a contract and form will be the core issues of this section.
Objectives
After having completed this section, you will be able to:
 Identify the basic requirements of a contract;
 Define the legal concepts capacity, consent, object and form;
 Note that all physical persons don not have the some contractual capacity;
 Explain the various defects of consent;
 Identify various forms of contract; and
 Solve related legal problems.
Q. What are the requirements to have a valid contract? What does the term valid contract sounds for?
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The word valid means legally good. Therefore a valid contract is legally binding and fully
enforceable by law.
Article 1678 of the civil code enumerates the following elements:
 capacity
 consent
 object
 form
3.3.1 Capacity
Q. what is capacity? Who are capable persons?
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Capacity means the ability to understand to understand ones actions and the effect of those actions,
persons with ability to contract are legally competent. In principle capacity is presumed unless the
contrary is proved. According to article 192 of the civil code
Every physical person is capable of performing all the acts of civil life unless he is declared incapable by
the law.
Though, as a rule every physical person is incapable, the law, for some rational declares some members
to be incapable. The civil code provides general and special disabilities under article 193 and 194
respectively.
Three grounds of general incapacity are provided under article 193 of the civil code. These are:
A. Age
B. Mental condition
C. Sentence passed on a person
Based on the above grounds minors, insane persons and judicially interdicted persons are deemed to
be incapable.
A. Minors
Who is minor?
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Pursuant to article 198 of the civil code persons of either sex who has not attained the full age of 18 years
according to the Ethiopian laws. Minors are given special protection under the law. For their own
protection minors are restricted in their freedom to contract. If left by themselves minors, may not make
wise and reasonable decisions. as a result of their immaturity, they may make decisions that may
negatively affect their own interests.
For his/her own protection, a minor is placed under the authority of other persons, the guardian and the
tutor. The guardian is responsible for the proper care of the minor. If a need arises, it is the tutor who
makes a contract for the minor (in the name of the minor).see articles 265-268 of c.c
What if a minor enters into contracts outside those exceptional circumstances? Contracts entered by a
minor in excess of his powers shall be avoided. If the contract made by a minor is beyond his powers, a
minor may not be forced to perform his obligations created under these contracts. But the contracts made
by a minor under the exceptional cases provided by law, remain binding on the minor. in other words, a
minor cannot avoid all of his contracts.
On avoiding a contract pursuant to article 316 of the c.c a minor is required to return to the other party
what he had received. He must return the thing or the money if it is still with him. It also happens that the
thing he received may be used immediately, may be damaged or destroyed. This does not affect the right
of the minor to avoid his contract. Besides, pursuant to article 13 of the commercial code an emancipated
minor shall be deemed under the law to have attached majority in all that concerns the care of his person
and the management of his pecuniary interest. To be emancipated means to be free. Emancipation may
not be revoked. it has lasting effect.
B. Insanity
The second ground of persons declared incapable is the group of insane persons. Pursuant to article 339 of
the civil code an insane person is
(1) A person who, as a consequence of his being insufficiently develop or as a consequence of a mental
disease, or of a senility, is not capable to understand the importance of his action.
(2) Persons who are feeble-minded, drunkards or habitually intoxicated persons, and persons who are
prodigals shall in appropriate cases be assimilated to insane persons.
The definition of insanity is given by considering the causes and effect. A person may have some mental
problem or disease, t hat does not make a person insane. Bu t is as a result of mental disease he/she
cannot understand the consequences of his action, such a person is insane person. The same works true
for a person of extreme old age.
Insanity may be classified to notorious and not notorious. This is to determine the effect of insanity on
the formation of contracts. Pursuant to article 343 of the civil code if the degree of state of insanity is
notorious, he/she is automatically protected by law.
However, if his /her conditions are not notorious, the insanity does not have any effect on the juridical
acts. (Article 347 c. c).
C. Judicial interdiction
Q. What is judicial interdiction?
----------------------------------------------------------------------------------------------------------------
Judicially interdicted persons are persons prohibited by court from making binding agreements. Why
does the court prohibit a person from making contracts or why does it withdraw his legal capacity?
According to the readings of article 351 of the civil code, judicial interdiction is another mechanism of
protecting an insane person. Judicial interdiction is pronounced or declared in the interest of insane
person, Or in the interest of his heirs.
However, for the purpose of protecting the public, the interdiction of a person must be publicizing within
the jurisdiction of the court. It is the responsibility of the guardian of the interdicted to make sure that the
judgment of interdiction is brought to notice of the registrar of the place where the interdicted resides.
Interdiction does not remain in force indefinitely. It is withdrawn when the interdicted person regains his
normal state of mind or his health.
3.3.2 Consent
Consent is an agreement given freely, willingly, or it is an agreement which is free from any defect. The
freedom of contract is expressed in consent. How can parties express their consent? Two forms of
expressing consent exist. These are the offer and acceptance
Agreements are usually arrived at by means of offer and acceptance. An offer is a definite statement by
one party called the offeror, of the terms under which he will contract. In other words an offer is a
proposal made by one party (the offeror) indicating his willingness to enter into contractual agreement
regarding a particular thing. An offer typically consists of a promise or commitment by the offeror to
give something, to do something or not to do something.
On the other hand, an acceptance is unqualified agreement of the other party, called the offeree, to the
proposal stated by the offeror.
If vague or indefinite offer is accepted, courts will not enforce the apparent agreement either party. The
terms of the offer must be sufficiently defined and certain to allow a court to determine what was
intended by the parties, and to state the resulting legal rights and duties.
3.3.2.1Termination of offer
An offer made by the offeror does not remain in force (open) indefinitely it comes to an end. How does it
come to an end? Offer terminates or comes to an end in different ways
a. Offer may come to an end by lapse of time. Offer may be made with or without a time limit for
acceptance. An offer made with a time limit ends at the expiry of the time limit. Where the offeror
does not specify a time limitation, the offerer remains in force for a reasonable period of time. The
problem arises in determining the length of a reasonable period of time offer also terminates by
revocation or withdrawal of the offer revocation is the power of the offeror important legal problems
may arise in connection with revocation
Activity
1. Under what circumstance does the offeror have the power to revoke an offer?
------------------------------------------------------------------------------------------
2. What is necessary condition to constitute revocation
-----------------------------------------------------------------------------------------
3. When does revocation take effect?
----------------------------------------------------------------------------------------
As a general rule an offeror has the power to revoke an offer at any time before acceptance even though he or
she promised not to do so.
3.3.2.2 Defects in consent (vices of consent)
Consent of the contracting parties must be free from defects. If consent is defective, a valid contract a valid
contract may not be created.
? How does the consent of contracting parties become defective? What are the defects that may lead to the
invalidation of a contract?
Article 1696- a contract may be invalidated where a party gave his consent by a mistake or under deceit or
duress.
Based on the above article there are three defects in consent
A. mistake
B. deceit (fraud)
C. duress
A. Mistake
In contract law, mistake is defined as an erroneous belief in a thing or in a fact. In order to invalidate a
contract on the ground of mistake, it must be fundamental, you cannot invalidate a contract.
Q. how do you distinguish between fundamental and non-fundamental mistakes? What criteria’s can you
see?
--------------------------------------------------------------------------------------------------------------------
a. A mistake is fundamental if it relates to the nature of a contract. For example a contract of sale is
completely different from contract of donation.
b. A mistake is fundamental if it relates to the object of the contract. The concept “ object of the
contract” in this context means obligation.
c. Mistake relating to the identity or qualification of a contracting party. This is another fundamental
mistake. Financial position of a person, his personal integrity, his credit worthiness of your
contracting party matters a lot.
Therefore: non-fundamental mistakes do not affect the validity of a contract. Mistakes relating to the
motives of the parties and arithmetical errors are the only mistakes considered as non-fundamental.
Arithmetical errors are errors in computation (calculation), typing errors etc. motive is something you
have in mind.
B. Fraud (deceit)
A contract may be invalidated on the ground of fraud where a party resorts to a deceitful practice to induce
another to make a contract. It is act of practice made with the intention of misleading another. Fraud creates a
wrong impression or belief in the mind of another. Concealments of a material fact is also fraud. A party who
has been deceived by a third party shall be bound by the contract unless the other contracting party knew or
should have known of the fraud on the making of the contract and took advantage thereof.See article 1740 of
c.c
C. Duress
Duress refers to compelling a party to give his consent to a contract by use of threat. The threat must be
serious and imminent harm to the party or to his ascendants, children or spouse. The threat must be imminent
or likely to happen soon. This, however, does not mean that it has to be real. It is sufficient if it appears real.
A person who gave his consent because he has been threatened by use of an unloaded pistol can avoid the
contract on the basis of duress. The pistol might not have bullets but it is sufficient if appeared to the person
threatened that it was loaded.
The threat may relate to property or person. The danger to the person may relate to his life, health, liberty,
honor or morals.
As opposed to third party fraud, third party duress would be sufficient to invalidate a contract. Thus, if
Alemu, threatened by Kassa, cocludes a contract with Berahnu, may demand the invalidation of the contract
though Berhanu, the contracting party, did not exercise it. This is due to the fact that duress is dangerous for
the social order. In the exceptional case that Berhanu, may not know the duress exercised by Kassa, Alemu
would be required to pay damages arising out of the invalidation of the contract for him. (Art. 1706 &1707)
3.4 Object of a contract
Object of a contract means obligation undertaken by the contracting parties. Pursuant to article 1711 the
object of the contract shall be determined freely by the parties. But their freedom is not absolute. There are
restrictions and prohibitions by law. Parties can not violate public policy in determining their obligations.
They cannot create obligations against the moral values of the society.
The obligation of a contract (obligation undertaken) must be defined clearly and precisely, possible, moral.
An obligation that is not clearly defined by the parties may not be defined by the court of law. A contract of
shall be of no effect where the obligation of the parties or of one of them relates to a thing or a fact which is
impossible and such possibility is absolute.
3.5 Forms of a contract
Contract may be made orally or in writing. According to article 1719, contracting parties have a freedom of
choosing the form of their contract unless the law prescribes special form for certain contracts. Sometimes
the contracting parties themselves may agree to make their contract in a special form even if the law does not
prescribe a special form.
Most contracts are oral. Many are made in telephone. Others are made and carried out in a single face to face
conversation. So what are the types of contracts required to be made in special form?
Art.1721- Preliminary
Preliminary contracts shall be made in the form of prescribed in respect of final contracts. Preliminary
contracts are contracts facilitating formation of another contract. Sometimes a contract may be concluded in
order to enter into another contract. A contract that has to be entered in order to conclude another contract is
called preliminary contract.
For example, AtoKebede a residence of Sweden desired to purchase a residential building in Addis Ababa.
As he cannot come to Ethiopia, he concluded a contract of agency with AtoAbebe to represent him in
purchasing the building from Ato Solomon.
In this example the contract of agency is preliminary contract where as the contract of purchasing the house
is the final contract. Pursuant to article 1721 of the civil code a preliminary contract has to be made in the
form of the final contract. The contract of purchase of the house as per article 1723 of the civil code has to be
made in writing. Accordingly the contract of agency has also to be made in writing.
Article 1722. Variations
A contract made in special form shall be varied in the same form.
Variation is modification of terms of contracts. Variation has to follow a form in which the varied contract
was made. Thus, a written contract can only be varied where the variation agreement is made in writing.
Where the initial contract is registered the variation has also to be registered. For example AtoAsnake agreed
to sell two residential buildings to AtoMarkos. Later AtoMarkos changed his mind and told to AtoAsnake
only one of the buildings is enough to him. AtoAsnake also accepted the variation. As the first contract
pursuant to article 1722 has to be made in writing. The variation agreement has to be made in writing.
Contracts relating to immovable properties shall always be made in writing and registered.
Article 1723- Contracts relating to Immovable
1. a contract creating or assigning rights in ownership or bare ownership on an immovable or a

usufruct , servitude, mortgage or immovable shall be made in writing and registered with court or
notary.
2. Any contract by which an immovable is divided and any compromise, relating to an immovable shall
be in writing and registered with the court or notary.
3. Notwithstanding the provisions of sub-article (1) of this Article, a contract of mortgage concluded to
provide security to a loan extended by a bank or a micro-financing institution may not require to be
registered by a court or a notary.
Mortgage contract is a security contract that is given as security for performance of obligation. A
mortgage contract is a contract of immovable property and shall be made in writing.
In addition to the writing requirement of contracts on immovable property the law prescribes another
formality. Contracts on immovable property shall be registered. The purpose of registration is creating
public awareness. It does not affect the validity of the contract. Unregistered contract is valid among the
contracting parties but it may not affect rights of third parties.
Art 1724-Contracts with public administration
Contracts in which any organ of public administration is party shall be made in writing and registered.
Therefore; any contract binding the government or a public administration and government organs are
party shall always be in writing and registered.
Art 1725- contracts for long period of time
Contracts that would serve for long period of time shall be made in writing. Do you see the importance of
writing in this case? As memory of human being may fadeout, written contracts cannot be forgotten. The
following contracts shall be made in writing.
 Contracts of guarantee
 Insurance contract
 Any other contract in respect of which such form is required by law
Art 1727- attestation and signature
All written contracts shall satisfy the following requirements
a. Attestation
Article 1727(2) of the civil code requires all written documents to be attested by two witnesses. The
witnesses declare that they saw the contracting parties conclude the contract. The witness does not
guarantee performance of the contract and by no means liable in any way. Where dispute arises as to the
contents of the contract the witness may be called to prove it. The witness shall be capable to enter into
juridical acts. Thus the witness shall be of full age.
b. Signature
Article 1727(1)-The person bound by the contract shall sign all written documents.
The signature may be written on the document or thumb mark may be affected. Signatures by mechanical
means’s and seals cannot be used for the purpose of signing on the documents. Signature increases the
validity of the contract. If the document has several pages, signatures have to be affixed on all pages of
the document. Do you know the requirement for?
A party that cannot write may affix his thumb mark on the document. But signature and thumb mark of a
blind cannot bind him unless authenticated. That is to say, the signature has to be certified. Certification
may be made by public offices having the power to authenticate documents. In Ethiopia this is done by
the office of document authentication and vital registration. The requirement of authentication is to safe
guarded the interest of the blind or illiterate person.-
Effects of no-compliance to the formality requirement
Where a contract has to be made in a given form, if non-compliance takes away from the contract pursuant to
article 1720
Where special form is prescribed by law and not observed there shall be no contract but mere draft of
contract.
3.6 Effects of contracts and extinction of obligations
3.6.1 Performance of contracts
A contract creates legal obligations. Performance of contract means the carrying out of this obligation. Each
party must perform or offer to perform the promise, which he has made.
I. Performance by whom?
Personal performance: In cases involving personal skill or credit, the person who promised must perform
himself in person. The court will enforce the intention of the parties, as expressed in the contract, or as may
be inferred from the circumstances of the case/specific performance/
Art1740- the debtor shall personally carry out his obligation under the contract where this is essential to the
creditor or has been expressly agreed.
Here there are two elements

1. Essential to the creditor. This is to mean sometimes personally of the person doing a contractual
obligation may be important. The creditor must establish that the he has special interest in having the
obligation performed by the debtor himself, that because of the nature of the obligation, it would not
be equivalent to have performed by someone else.
2. Has been expressly agreed. If the parties have expressly stipulated performance by the debtor himself
the creditor need not establish this special interest, he can automatically require the debtor to perform
the contract.
Performance by third party: In all other cases the contracting parties or his representative may employ a
competent person to perform it. See Art 1740(2).
II. Time and place of performance
According to the general rules the time and place of performance of a contract are matters to be
determined by agreement between the parties to the contract.
Place of payment
Article 1775 of the civil code, deals with the place of payment of contractual obligation, accordingly
 Payment shall be made at the agreed place

 Where no place is fixed in the contract, payment shall be made at the place where the debtor had
its normal residence at the time when the contract was made. Where the contract is silent, the law
states the contracts to be performed at the debtors place.
Time of payment
The time when payment is due, like the place of payment, is to be fixed by agreement between the parties.
Where no time for payment is fixed in the contract the parties are normally required to perform their
obligations immediately. A party must perform as soon as the other party gives him default notice.( see art
1756 of the c. c)
3.7 Transfer of Risk
As a general rule the debtor bound to deliver a thing shall bear the risks of loss of or damages to such thing
until delivery is made in accordance with the contract. As, and exception, sometimes, risk may transfer to the
buyer before the thing is given to him.
3.7 Variation of terms of a contract
Variation of a contract is an alteration or bringing about some changes in the terms and conditions of
contract. Contracting parties using freedom of contract can change terms of the contract in any way
appropriate to them. But variation cannot make unless all of the contracting parties agree.
3.8 Non-performance of contractual obligations
Non-performance is failure to perform contractual obligation. It is also called breach. What happens to a
contract if it is performed accordingly? What are the options open to the party seeking performance?
Failure by a party to perform his obligations accordingly entitles the other party to invoke or apply certain
legal remedies against the non-performing or improperly performing party. This is stated in article 1771 of
the civil code. Where a party does not perform his obligation, the other party may, according to
circumstances, request the enforcement of the contract. Or on the contrary, request or sometimes himself
declare, the cancellation of the contract. He may also require that the damage caused him by the non-
performance be compensated. A party seeking performance has three possible options open for him. These
are:
 Forced performance of the contract

 Cancellation of the contract
 Claiming damages for non-performance
3.9 Extinction of obligation
Contractual obligations are normally extinguished through performance in accordance with the contract and
the law, however, other ways in which a contractual obligation is extinguished are:
A. invalidation and cancellation of contracts/ art 1808-1818/
As we have discussed where the contracts its purpose is to protect one and only one of the contracting
parties. i.e the victim of error, fraud, or duress. in such a case, only the person that the law intends to protect
can invalidate the contract.
Example, Ahmed enters into a contract with smith. Because of mistake induced by smith’s fraud, Ahmed can
have the contract invalidated. But smith cannot.
B. Termination of contracts and remission of Debt/1819-1825/
A contract can be terminated if one of the parties has put an end to the contract. Most of the time termination
of a contract requires the consent of both parties. There are however two exceptions.
1. If the contract itself foresees the possibility for one or both of the parties individually to denounce it
by simple unilateral declaration.
2. Where unilateral termination is possible that of contracts of indefinite duration.
Example, Daniel leases a field to Naomi and no time provision is included.
C. novation
Novation is one of the methods to extinguish an obligation. And it is to mean replacing an old obligation
by new one.
D. set-off
Article 1832-1834 define the condition in which set-off occurs automatically. Article 1832 imposes three
positive conditions:
 The debts must be in money or similar fungibles

 They must be liquidated
 They must be due
Example; A owes B 2000 birr and B owes A 2000 birr. The two debts are extinguished by set-off
E. Merger
Merger occurs when one person, with respect to a single debt, becomes creditor and debtor at the same
time. /art 1842-1844/
Merger usually takes place usually takes place in relations connected with succession, where the creditor is
the only hair and up on inheritance, the obligation of the one and the right of the other merge in the same
person.
Example:
X company owes X company 50,000.00 birr. After a certain time X Company bought Y company. Here there
is merger.
3.10 Void and voidable contracts
Agreements which do not satisfy the essential elements of a contract may be either void or voidable.
A. Void agreements: an agreement not enforceable by law is said to be void. A void agreement has no
legal effect. It confers no right on any person and creates no obligation. /see art 1808(1)of the civil
code/.
Example
 An agreement made by a minor or incapable person.

 Agreements against public policy or unlawful agreements
B. Voidable agreement: avoidable agreement is one which can be avoided,i.e. set aside by some of the
parties to it; until it is avoided it is a good contract.
Example: contracts brought about by coercion, undue influence, mistake etc.
Review Questions
Answer the following questions to summarize the chapter
1. What is contract in general? What elements does it incorporate?

2. What is contractual obligation?
3. What is meant by “form” of contract?
4. What is “free consent” as used in reference to the formation of contract?
5. Explain lawful object to an object
6. Explain mistake as vices in consent
7. Could mere motive invalidate a contract?
8. Identify void and voidable contracts
References
 The Civil Code of the Empire of Ethiopia, Proclamation No 165 /1960
 George Krzeczunowicz, Formation and Effect of Contracts in Ethiopian Law, Addis Ababa
University,1983
 Rene David Commentary on Contracts in Ethiopia ,Hailesellasie I University, 1973
 Tilahun Teshome, Basic Principles of Ethiopian Contract Law (in Ahmaric),Federal Supreme Court,
Addis Ababa, 1989

Note On Busines Law One To Three

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Note On Busines Law One To Three

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Note on Business Law Mohammed B

Introduction to business law

After completing this unit you will be able to:

 Understand the meaning and nature of law;

1.1 Meaning and nature of law

1.1.1 Meaning of law

1.1.2 Characteristics of law

 Prescribe general rules of conduct

1.2 Sources of law

The following can be taken as the basic sources of law

1.2.1 Legislative sources

1.2.2 Judicial sources

1.2.3 Administrative sources

1.3 Classification of laws

1.3.1. Public and private law

B. National/domestic/ public law

II. Private law

A. International private law

1.3.2 Civil versus Criminal Law

1.3.3 Substantive versus Procedural Law

Laws Law making organs

1.4 Function of Laws

The much known functions of law can be summarized as follows:

 laws as a tool for preservation of peace and order

Answer the following questions

 Biset Beyene, Introductory note on law in general, (unpublished)

2.1 Meaning of Legal Person

Basically, there are two kinds of persons:

1. physical (natural) persons- It refers to human being

2.2 Commencement of Personality in Natural Persons

i) the interest of the child justifies the grant of personality;

ii) the child is born alive; and

iii) the child must be born viable.

2.3 Commencement of Personality in Legal (Artificial Persons)

How does your institution acquired its personality?

2.4 Attributes of Legal Personality

iii) They can administer their property in their own names.

6. Persons discharging special functions

2.5 Termination of Physical Personality

2.6 Termination of legal personality

1. Explain the term “person”?

After having completed this unit you will be able to:

 appreciate the difference between legal and contractual obligation

3.1 Sources of obligation

 distinguish between legal and contractual obligations;

Q. do you know the different sources of obligation?

3.1.1 Law as source of obligation

3.1.2 Contract as source of obligation

Q. What are contractual obligations?

Answer the following questions in the space provided.

1. What do you understand by the term obligation?

After having completed this section you will be able to:

 Define the term contract;

How does Ethiopian law define a contract?

Article 1675 of the civil code provides as following:

This standard definition applies to all types of contracts

3.2.1 Elements in the definition

Q. What are the important elements in the definition?

Q. what do parties contract to do?

Answer the following questions in the space provided.

1. Define the word contract using your own words.

3.3 Formation of Contracts