WOREBE UNIVERSITY

SCHOOL OF LAW
\
Business law
 BY:
SELIFSO BUNARO (LL.B, LL.M)

SEPTEMBER, 2019

1
 Business law
• CHAPTER ONE: INTRODUCTION TO BUSINESS LAW
–1.1. Meaning and nature of law
 Law is essential to any society - it provides the rules by which
people and businesses interact.
 Law affects almost every function and area of business.
•a. Meaning of law: The term Law has no single definition
•Let us see some of them:
•1. under the black’s law dictionary, 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.
 It is also defined as a regime that orders human activities and r/ns
through systematic applications of the force of politically organized
society or through social pleasure backed by force in that society.
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 --

2. as defined 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.
 “a rule that can be enforced by the courts.”
 the body of rules that can be enforced by the courts or by
other government agencies.”
 “a set of rules and principles intended to guide conduct in
society, primarily by protecting persons and their property;
facilitating personal and commercial interactions; and
providing mechanisms for dispute recognition.”
the bodies of rules to w/c person are expected to confirm.
• Rules of conduct that are imposed by a government
authority and backed by sanctions. 3
 b. Characteristics of law

1. Generality: Prescribe general rules of conduct capable of entertaining new

situations and does not specify the names of specific persons or behaviours.
• The extent of its generality depends on-on whom the law is made to be applicable.
E.g.
 “Every one has the right to life, liberty and the security of a person.” [Art 3, UDHR].
- This law is made to be applicable to every person on this world. Therefore, it is
universal.
 Registration of Trade Name,
 Article 38(1)(b) of the 1995 FDRE Constitution, “Every Ethiopian national, without
any discrimination based on colour, race, nation, nationality, sex, status, has the
following rights… [On attainment of 18 years of age, to vote in accordance with the
law].”
- This law is made to be applicable only to Ethiopian nationals who attain 18 years
of age. Therefore, it is even less general than the second illustration.
 “Whoever intentionally spreads or transmits a communicable human disease is
punishable with rigorous imprisonment not exceeding ten years.” [Article 514 (1) of
the 2004 Criminal Code of the Federal Democratic Republic of Ethiopia].
- This law is made to be applicable only on a person who commits the crime.
Therefore, it is even less general than the third illustration. 4
2. Normative: creates some standards, customs, rules, averages….for behaviors

 Permissive: Permissive laws allow or permit their subjects to do the act they
provide. E.g. Voluntary Registration :A person who carried on taxable activity and is
not required to be registered for VAT, may voluntarily apply to the Authority for such
registration, if he regularly is supplying or rendering at least 75% of his goods and
services to registered persons.(Art. 17. of VAT proc.)
 Directive: law orders, directs or commands the subject to do the act provided in
the law. e.g. Obligatory Registration
A person who carries on taxable activity and is not registered is required to file an
application for VAT registration with the Authority if - (a) at the end of any period of
12 calendar months the person made, during that period, taxable transactions the
total value of which exceeded 500,000 Birr. Art.16(1) of VAT
 Prohibitive: e.g. Registration in the Commercial Register
No person shall engage in any commercial activity which requires business license
without being registered in the commercial register.(Art.6(1) of proc. No. 686/2010)
3. Backed by sanction: provides remedy for its violation(e.g. Art. 60.(1) of pro.no.
686/2010 :Penalty)
• should not be retroactive/non-retroactivity of criminal laws/
• should provide clear standards of decision
• should be given obedience by citizens
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 1.2. Sources of law
• Concept of source?
• -Narrowly speaking (source where (courts or judge obtain the rules by which to
decide cases)) and
-broad:
1.Formal source-organ from w/c the law get authority-state-governmental
institutions that formulate legal rules
2.Material source, may be legal or persuasive(historical)-procedure-the origins of
legal concepts and ideas …
3.Litrary source-source for mere information-the published manifestations of the law
• In our case the concern is the narrow sense of the source-so, statutes; judicial
precedents; custom; the opinion of experts; morality; and equity can be the source
a. Custom: may be popular, judicial and contractual custom
b. Legislations:-law made by pertinent law makers like legislatures(e.g. HPR in
Ethiopia)
c. Judicial decisions= case laws=precedents
a. Administrative sources= Laws and regulations published by government agencies
like council of ministers()
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 1.3. Classification of laws
• Law has different classifications depending on the base of
classifications
1. PUBLIC AND PRIVATE LAW
2. INTERNATIONAL AND NATIONAL LAW
3. SUBSTANTIVE AND PROCEDURAL LAW
4. CIVIL AND CRIMINAL LAW(
1.a.Public law
It regulates the acts of persons who act in the general
interest, in virtue of a direct or mediate delegation
emanating from the sovereign e.g. Constitution, criminal
code, Administrative law like proclamation to define
power and duties of gov.t agencies civil service
proclamations,--- 7
 --
1.b. Private law: regulates the acts, which individuals do in
their own names for their own individual interest. It
regulate relations b/n private persons. E.g. Law of contract,
family law , law of succession, ----
2. INTERNATIONAL AND NATIONAL LAW
2.a.International law: It can be public int.l law and private
int.l law.
i. Public int.l law consists of rules which regulate relations
between State inter se. For example the relations between
Ethiopia and Sudan are governed by public international
law. E.G.BIT between Ethiopia and Israel, DTA between
Ethiopia and Netherlands, Agreement Establishing the
World Trade Organization

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ii. Private international law, on the other hand, governs the

relations between individuals of different nationals.
Different nationals involve in commercial and other civil
transactions beyond their countries. It is also called conflict
of laws. Provides rules to choose applicable law and forum
court.
2.b. National law:-law that pertains to a particular nation
e.g. Ethiopian law, Egyptian domestic law----
3. Substantive And Adjective Law
3.a.Substantive: (define rights, duties & liabilities e.g. right
to life, liberty, property, security etc of person(constitution),
detailed rights under property law, duties and rights under
contract law( e.g.art.2273ff), liabilities & punishments
under criminal law(see Art501) & the like.
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3.b.Adjective Laws: --
• procedural and evidence laws.
• They helps to enforce substantive laws.
• They are basically means to an end.
• Procedural laws are : criminal(e.g. how to report,
investigate, prepare charge, trial, prison-) and civil(party
having right to sui, how to prepare pleading, how to
summon, how to hear, how to call evidences, how to
decide, how to execute--- ) procedure laws. –
• Law of Evidence:- is the law that consists of the rules and
principles, which govern the relevancy, admissibility,
weight and competency of evidence. It compress the legal
rules regulating those means by which any alleged matter
of fact, the truth of which is submitted to investigation is
established or disproved 10
 4. CIVIL AND CRIMINAL LAW
4.a. Civil law is that branch of law dealing with the definition and
enforcement of all private or public rights, as opposed to criminal
matters . In Ethiopia, we have a civil law codified in 1960, which is known
as Civil Code.
4.b.Penal(criminal) law unquestionably forms part of public law. The state
alone, representing the nation, has the right to punish. Prosecutions and
condemnations are carried out in its name.
 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.
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• Parties to the suit
 1.4. Hierarchy of laws
• It 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
• Directives
Laws which are made by the superior organs are
superior and those which are made by
subordinate organs are subordinate. 12
 1.5. Function of Laws
 The much known functions of law can be
summarized as follows:
• laws is a tool for preservation of peace and order
• laws is platform (proposal) of human co-
operation
• laws is instrument of domination
• laws is mechanism for human engineering
• laws is an instrument to administer justice

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 Meaning of Business Law
•Business/Commercial law is part of private law.
•a body of law that relates to commerce and business
transactions, area of law that govern business rela/ships
•private laws which regulate business activities, the
status of traders and business orgs. carrying on a trade.
•Commercial law includes law of sales; negotiable instruments,
such as checks and promissory notes; carriage by land and sea;
insurance; brokerage; guaranty; and shipping.

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•Business law performs many functions, including:

Defining general rules of commerce;
Protecting business ideas and business assets;
Providing mechanisms that allow business people to determine
how they will participate in business ventures and how much
risk they will bear;
Ensuring that losses are borne by those responsible for causing
them; and
Facilitating planning by ensuring that commitments are honored.

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 CHAPTER TWO: 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 of sale, insurance,
business organization, and the like.. In later
Units we will be considering such legal
relationships as contracts, sale, agency,
insurance etc.

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 2.1. Meaning of Legal Person

• Ordinarily person refers to individual human being.

• But in the field of law, the term person refers to all
beings capable of having rights and duties.
• Basically, there are two kinds of persons:
a. physical (natural) persons- It refers to human being
b. Judicial (artificial) or legal, fictitious, and moral
persons- Legal persons include beings, which are given
rights and duties by the operation of the law. E.g.
associations, share companies, private limited
companies, etc.
• “personality” refers to all the attributes that have legal
protection.= the capacity to be bearer of rights and
duties (a subject of rights) 17
 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.”
• So, in pple, a human being becomes capable of having rights and
duties from the moment of birth.
• In some cases, birth is not by itself a satisfactory criterion for
determining the granting of physical personality. Article 2 “A child
merely conceived shall be considered born whenever his interest so
demands provided he is born alive and viable(lives for 48 hours)."
• A merely conceived child might be considered as a person when its
interest so demands, born alive and liable.
• The interest is usually, if not always, connected to the matter of
succession. E.g. father dying while his wife is expecting a child.
• The interest of the child is said to justify the grant of personality
only where the advantages outweigh the duties or the
inconveniences. (right vs. liability)
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 2.3. Commencement of Personality in Legal (Artificial) Persons
• They will be capable of having rights and duties(personality) only where they are
registered in the commercial register. Art 9 of (1) commercial registration and
licensing proclamation No.686/2008 which reads as “Business organizations
shall acquire legal personality by registering in the commercial register without
being publicized in a newspaper as provided for under Article 87, 219, 220, 223
and 224 of the Commercial Code for their establishment or amendments to
their memorandum of association.”
• There are other institutions which acquire their legal personality by
proclamations.
– Attributes of Legal Personality
 The following are some the most important features of artificial persons.
• 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.
• Artificial persons perform certain juridical acts like contracts in their own names.
• They can administer their property in their own names.
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 2.4. Capacity
• It is the ability to exercise one’s rights and duties
by oneself.
• 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
incapable persons into two: general incapacity
and special incapacity.

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 A. General incapacity
• Minors: Persons who have not attained the full age
of 18 years.
• Judicially interdicted persons: Persons who are
declared by the court as incapable because of their
mental problem/senility
• 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.
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 B. Special incapacity
• Legally interdicted persons: the court examining the behaviors of
the criminal, if assumed important, may withdraw certain civil
rights
• Foreigner: the law imposes some limitations, special incapacity,
because of their nationality (there are investment areas
exclusively reserved to Ethiopian citizens(Art.7 of inv.t proc
no.769/2012 & Art. 3 of regu.No.270/2012) and political rights like
the right to elect and to be elected).
• Persons discharging special functions (special incapacity like
judges)
2.5. Termination of Physical Personality
• There are two basic grounds for the termination of physical
personality.
 Death and
 Absence; 22
Absence: It is a court declaration given where a person
disappears for more than two years and there is no news
on his whereabouts.(154-173)
unlike death, it does not terminate personality
permanently. The counting of time interrupts if any news
is heard on his whereabouts.
Absence has the effect of death.
2.6.Termination of legal personality
The legal personality of artificial persons like share
companies, associations, NGOs etc shall terminate when
the concerned entity’s registration is cancelled from
registry and cancellation is published in the Official
Commercial Gazette. Art.226 of com. code and Art.17(4)
proc.no.686/2010. 23
 Chapter 3: BUSINESS AND BUSINESS
ORGANIZATIONS
3.1. Definition and Elements of Business
• Article 124 of com. 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.”
• Art. 5 is illustration. so it can include activities that may
pertain to health, construction and education activities that
have been recently defined as commercial activities by federal
government as per the power entrusted to it constitutionally.
• See Articles 6-9 for activities not considered as commercial
activities
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 3.1.1. Trader/Business Person vs. Civilian
• not every person involved in the activities of article 5 or other
activities of other pertinent laws can be considered as a business
person or a trader.
• To be a trader a person has to carry on those and other activities
professionally and for gain
• Carry professionally refers to an act of the person to
continuously engage or participation of the person on the act
without intervention. E.g. should not be the person’s part time
works.
3.1.2. Basic Elements of Business and their Protection
• As told above business has 2 constituent elements, corporeal
movables and incorporeal things
• incorporeal assets like Good will, Trade name, Trademark and
Patent and Copy Right take lion’s share characteristics of
business. 25
 A. Good will
 Definition: “The goodwill results from the creation and operation of a
business and is of a value which may vary according to the probable or
possible relations between a trader and third parties who may require
from him goods or services.”(Art.130 of com. code)
• It is reputation, credit, or reliability that a certain business acquires as
the result of its goods or services.
• It results from the creation of business.
• It has special importance to the business and it is most important
element of a business
• That is why article 127(1) enshrines that a business consists mainly of a
good will and protection from unfair competition. Why?
• The protection to good will is given Consumers being the center of
analysis
• So, simply copying of trade mark of other business, misleading
information about other buss., establishing the same buss. After sale at
near areas, are prohibited. 26
 ---

 Effect of unfair competition: ( Art. 134 of com. code)

( 1) The court may, in cases of unfair competition:
( a) Order that damages be paid by the unfair competitor; and
(b) Make such: orders as are necessarily to put an end to the unfair
competition.
(2) The court may in particular:
• Order the publication, at the costs of the unfair competitor, of notices
designed to remove the effect of the misleading acts or statements of the
unfair competitor, in accordance with
• (b) Order the unfair competitor to cease its unlawful acts in accordance
with Art. 2122 of the civil code.
B. Trade Name
• It is the name under which a person operates his business and which
clearly designates the business
C. Distinguishing Mark
• It is the name, designation, sign or emblem affixed on the premises
where the trade is carried on and 'which clearly designates the business.
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 3.2. Business entities(Organization)

A. Definition: It is any association arising out of a partnership agreement.

• What is a partnership agreement?
• “a contract where by two or more persons who intend to join together
and to cooperate undertake to bring together contributions for the
purpose of carrying out activities of an economic nature and of
participating in the profits and losses arising out thereof, if any.”
Art.211 of com.code
• Elements:
• It is a contract.
• two or more persons
• Agree to secure their collective interest.
• Agree to bring together contribution.
• agreeing to participate in an activity of economic nature.
• participating in the profits and losses arising out thereof, if any
proportionately with share/ contribution.
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 ---

B. Types of Business Organizations under Ethiopian Law

• There are six types of business organizations in Ethiopian’s commercial code.
1. Joint venture
2. Ordinary Partnership
3. General Partnership
4. Limited Partnership
5. Share Company
6. Private limited Company
• They have some peculiar and some common characteristics:
 common Xs that all possesses are:
• The formation of each type of business organization shall be in writing save for
Joint Venture.
• All of them shall be granted legal personality excluding Joint Venture.
• All of them exist artificially. all run their trading activity through natural person
as an agent
• assignment of profit or loss to a single partner is totally prohibited
• All of them shall cease to exist as a business organization when partners agreed
to the effect, or via declaration of the Law. 29
 1. Joint Venture

• Considering the following reasons Joint Venture is

anonymous or clandestine business organization.
• Unknown to third parties.
• agreement need not be in writing and is not subject
to registration and other forms of publication
required in respect of other business organizations.
• does not have legal personality.
• If it is made known to third parties, deemed, insofar
as such' parties are concerned, to be an actual
partnership.
• It doesn’t have name, and anonymity of the place of
business and its capital 30
 2.Ordinary Partnership

• A 'partnership is an ordinary partnership within the

meaning of this Title where it does not have characteristics
which make a business organization covered by another
Title of this Code.
• It can only participate in non commercial activities.
• if it participates in commercial activities factually it will be
considered as a general partnership
• the property, debts and rights brought into or acquired by
the partnership shall belong to the partners in common
under the terms of the partnership agreement.
• the ordinary partners will be obliged to pay the debt of the
partnership from their personal assets, if the ordinary
partnership’s asset is not sufficient to pay the debts of
creditors. 31
 Management of Ordinary Partnership
 All the partners shall have a right to act as managers, unless
the partnership agreement or a decision of the partnership
has appointed one or more of the partners or a third party to
be the manager.(Art.233)
• So, decisions shall be made jointly.
• The only exceptional ground for a single manager to take act
of management without consulting the joint managers is in
case of urgent situation= a situation that doesn’t give a room
to consult the joint managers.
 Statuary Manager= manager assigned by virtue of the
memorandum of association.
• It enjoys a privilege to take decisions alone not only without
consulting the partners but also against the clear objection
of the partners unless he is not defrauding 32
 ---

 The partners can revoke the power of statuary

manager only for good cause such is the case for
intolerable acts like when;
• He is unfit to exercise the managerial power given to
him or;
• When he grossly breached his duties
 partners have the right to check the books and
accounts of the partnership and right to demand
the draw up of financial statement.
 Partners are also obliged to show the utmost good
faith, degree of diligence and skill while they are
managing the partnership as well as avoid conflict of
interest. 33
 3. General Partnership
• It consists partners who are personally, jointly, severally and fully liable
both to the partnership firm’s undertaking and as between themselves as
well. e.g.
• which may engage in commercial and non commercial activities.
• shall have firm name, which consists of the names of at least two of the
partners followed by the words “General Partnership”
• may not contain names of persons who are not partners.
 Management of General Partnership
• It shall be administered by one or more mangers which may or may not
partners.
• In the absence of contrary agreement, all partners are presumed to be
administrators of the partnership.
• The manager is liable only when he acts beyond the scope of his power.
• There may also be Statuary manager
• The power of Statuary manager can’t be revoked even for the existence
of good cause except by decision of court(Art. 293). 34
 4.Limited Partnership
 It comprises two types of partners:
• general partners in full liable personally, jointly and
severally and limited partners who are only liable to the
extent of their contributions.
 Management of limited partnership is a function
exclusively reserved to general partners.
 If any limited partner participates in the management of
the limited partnership he will turn himself to a general
partner.
 partnerships needs to have its own Trade name but names
of limited partners shall not be used
 If a limited partner let his name mentioned in the name of
the limited partnership then he is turning himself to a
general partner. 35
 5. Private Limited Company

• a company whose members are liable only to the extent of

their contributions.
• The liability of the share holders goes only to the extent of
their share.
 peculiar natures of PLC:
• A private limited company shall not have less than two or
more than fifty members and is always commercial in form.
• The company shall not issue transferable securities in any
form. Transferable securities refer to bonds and
debentures that the company could have used them as
securities or guaranty in order to seek loan from the
market. The inability to issue such transferable securities is
one of the limitations of Private Limited Company where as
it is a plus for Share companies. 36
 --

• The capital of a private limited company shall not be less than

15,000 Ethiopian dollars.
• The amount of a share shall not be less than 10 Ethiopian dollars.
• All shares shall be of equal value and a member may hold more
than one share.
• Preference shares can’t be issued by Private limited company.
• Preference shares could give the share holder a priority right
over the profit or asset of the company, in the event of
dissolution.
• those shares do have an equal par value with the other ordinary
shares. Such kind of shares can be issued by share companies
only not by Private limited company. Hence they can only issue
ordinary share which most investors would find it unattractive to
join the company.
• A private limited company shall not undertake banking,
insurance or any business of a similar nature. 37
 6. Share Company
• A share company is a company whose capital is fixed in advance and
divided into shares and whose liabilities are met only by the assets of
the company.
• the name of the members is Share holders and their liability is only to
the extent of their contribution.
• some of the peculiar natures:-
• Minimum amount of capital 50,000
• Nominal par value of each share shall not be less than 10 (ten) Ethiopian
dollars.
• Minimum share holders 5
• Have exclusive right to engage in Banking and insurance business
• shall be formed when it:
• The capital has been fully subscribed
• One quarter at least of the par value of the shares has been paid up and
deposited in a bank, in the name and to the account of the company.
38
 CHAPTER FOUR: CONTRACTS IN GENERAL
4.1. introduction
• This unit deals with sources of obligation in general, the
definition of contract, and basic requirements for the
existence of a valid contract, Effects of contracts,
extinction of obligations, Void and voidable contracts.
• 4.2. sources of obligation in general
What is obligation?-no uniform legal definition currently.
But some define it based on their own legal system.
For instance, French judges define the term obligation as a
legally binding relations of one to another where a
party is obliged to give or to do or not to do something.
This is what we should understand for our purpose.
39
 -

• Then What are sources of obligation?

• In modern time, the laws of d/t countries clearly
express the sources of obligation.
For instance, French civil code classifies the source of
obligation as;
• i) Obligation that arises from contract
• ii) Obligations that arise beyond the contract
• iii) Obligation that arises from the unlawful acts
• iv) Obligations that arises from the causing of
physical injury or causing material damage
• vi) Obligations arising from law
40
 --

• In Ethiopian legal system, there are no clearly stated

classifications of sources of obligations. But Art.1675 of
Ethiopian civil code generally expresses obligations as
arising from contractual agreements.
• But there are also other sources of obligations-like those
arising from non-contractual relationships (from
Art.2027-2178):-obligations arising from unlawful acts
or obligation that arises from the causing of physical
injure or obligation arising from the causing of material
damage (from Art.2027-2161) and finally, obligations
arising from unjust enrichment (from Art.2162-2178).
• obligation may also arise from the law when law
imposes obligations on persons to give or not to give, to
do or not to do some acts 41
 --

 Obligation arising from the law is a unilateral

obligation imposed on citizens or contracting
parties without their consent. It includes among
other things
• Obligation to pay income taxes
• Obligation to render military services
• Obligations of creditors
• Obligation of debtors
• Obligations of families to their children,
maintenance etc.
 Main subject matter of this chapter is contract as a
source of obligation
42
 Contract as source of obligation
• Contractual obligations or obligations created by
agreement as a result of free will.
• For instance, if you sell something to someone, you
willingly undertake to transfer the right that you have on
the thing to the buyer. The buyer pays you because he
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 only on the parties
who agreed to be bound.
• Contractual obligations are not binding on third parties
or on non-contracting parties. 43
 4.3. Definition of contract

• What is contract?
• Generally, 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.
• 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.
 Elements in the definition
it is an agreement.
It is always b/n two or more persons e.g. sale k, or partnership
agreement in article 211 of the commercial code .
Create, vary or extinguish obligations only as between themselves,
Create, vary or extinguish obligation of proprietary nature. 44
 4.4.Formation of Contracts
1. Essential Requirements for the formation of
Valid Contract.
• When do we say that a k is valid? a valid contract
is legally binding and fully enforceable by law.
Requirements are:- Article 1678 of the civil code
enumerates the following elements as validity
requirements:
• capacity
• consent
• object
• form
45
 1.Capacity
• Capacity means the ability to understand one’s actions
and the effect of those actions.
• In principle capacity is presumed unless the contrary is
proved. Art. 192
• But, the law, for some rationale declares some members
to be incapable.
Article 193 provides grounds of general incapacity
(disability): Age, Mental condition, Judicial declaration
passed on a person.
• So, minors, insane persons and judicially interdicted
persons are deemed to be incapable.
Art.194: provides grounds of special incapacity (disability)
as nationality of persons and sentence passed on a person.46
 a. Minors
• 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.
• So, they are placed under the authority guardian(for the proper
care of the minor) See articles 265-268 of c.c. and the tutor(for
the protection(administration) of property interest) Art.280ff.
• What if a minor enters into contracts outside those exceptional
circumstances?
• Pple Juridical acts performed by the minor in excess of his powers shall
be of no effect.(Art.313)
• Exception 315: Good faith of person contracting with minor.
• Contracts entered into by a minor shall be valid where the other
contracting party could in good faith believe that the minor had received
the authorization to conclude them and he has not taken advantage of
the inexperience of the minor. 47
 b. Insanity
Pursuant to article 339 of the civil code, an insane person is:
• A person who, as a consequence of his being insufficiently
developed or as a consequence of a mental disease, or of a
senility, is not capable to understand the importance of his action.
• Persons who are feeble-minded, drunkards or habitually intoxicated
persons, and persons who are prodigals shall in appropriate cases be
assimilated to insane persons.
 Insanity may be classified to notorious(Art. 341 ff) and not
notorious(347).
• 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.). 48
 c. Judicial interdiction
• Judicially interdicted persons are persons prohibited by the
court from making binding agreements.
• Under 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.
Art. 353. - Application for interdiction may be either:
• By insane or infirm person himself, or by his spouse, or by any
of his relatives by consanguinity or affinity, or by the public
prosecutor.
• Art. 358. - Protection of interdicted person.=as minor
• Interdiction does not remain in force indefinitely.
• It is withdrawn when the interdicted person regains his
normal state of mind or his health.(Art.377-379) 49
 2. Consent(Art.1679-1710)

• Art.1679: The freedom of contract is expressed in consent.

• Two forms of expressing consent exist: offer and acceptance
(Art.1681.)=Form of offer and acceptance: may be oral, in writing, signs or
conduct so far as it is sufficient to communicate.
But offeror may put particular form of acceptance.(1681(2))
• offer is a proposal made by one party (the offeror) indicating his willingness
to enter into contractual agreement regarding a particular thing.
• typically it consists of a promise or commitment by the offeror to give
something, to do something or not to do something.
• 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.
• acceptance is unqualified agreement of the other party, called the offeree,
to the proposal stated by the offeror.
• Silence shall not amount to acceptance(1682). Exception is: Art. 1683(duty
to accept), 1684(pre-existing business r/ns, )
50
 Termination of offer

Offer terminates or comes to an end in different ways

• Offer may come to an end by lapse of time(Art.1690). 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(1691). What
shall be the length of a reasonable period of time?
• Offer also terminates by withdrawal of the offer by offeror
(1693(1)). revocation is the power of the offeror. important legal
problems may arise in connection with revocation.
• Offer shall also be terminated by rejection by the offeree even
before the expiry of time limit given by the offeror (1960(2)).
• Defective acceptance is another ground that terminate offer.
Defective acceptance (counter offer) is acceptance with
variation/modification.(Art.1694) 51
 Defects in consent (vices of consent)

 three grounds of defective consent(Art.1696)

• Mistake:-
• deceit (fraud)
• Duress
 Effect of defective consent is invalidation
• Mistake :- an erroneous belief in a thing or in a fact
• To invalidate, mistake must be fundamental
 Mistake is fundamental if it relates to :
• the nature of a contract: the one that is intended is different from
what is actually undertaken in nature/kind. E.g. k of donation Vs. sale
• the object of the contract. Type of obligation…
• the identity or qualification of a contracting party b/c Financial
position of a person, his personal integrity, his credit worthiness of
your contracting party matters a lot.
 Mistakes relating to the motives of the parties and arithmetical errors
52
 • Fraud (deceit)
• It is act of a party made with the intention of
misleading another.
• 3rd party fraud is not ground.
• Concealments of a material fact is also fraud.
• Duress /threat(Art. 1706 &1707)
 compelling a party to give his consent to a contract
by use of threat
 Threat may relate to property or person.
 threat must be serious and imminent harm to the
party or to his ascendants, children or spouse,
property---
 third party duress would be sufficient to invalidate
53
3.Object of a contract (Art.1711-1718)

• means obligation undertaken by the contracting

parties.
• determined freely by the parties.
But it must be
 defined clearly and precisely
 legal (lawful)
 moral,
 possible
• Unless contract will not have effect, either void or
voidable
54
 4. Forms of a contract(Art.1719-1730)
• Contract may be made orally or in writing
• Parties have freedom to choose unless law or their agreement
obliges them to conclude in writing.
• To day there are Ks made through phone, fax, online(internet
websites), ---
 Ks legally required to be made in writing:
A. Art.1721- Preliminary
• A contract that has to be entered in order to conclude another
contract is called preliminary contract. E.g. Agency k to purchase
house in Ethiopia
• preliminary contract like agency k has to be made in the form of
the final contract.
B. Article 1722. Variations
• A contract made in special form shall be varied in the same form.
E.g. if principal written, registered, then the variation. 55
 --

C. Article 1723- Contracts relating to Immovable

D. Art 1724-Contracts with public administration
E. Art 1725- contracts for long period of time like
 Contracts of guarantee
 Insurance contract
 Any other contract in respect of which such form is
required by law
 Requirements for the validity of written form:
• Art 1727- attestation by 2 witness(1727(2) ) and
signature(1727(1)-)
 Where special form is prescribed by law and not
observed there shall be no contract but mere draft of
contract. Art.1720 56
 4.5. Effects of contracts and extinction of obligations

I. Performance of contracts

A. By whom the contract is performed;

B. To whom the contract is performed;
C. The place of performance;
D. Time of performance;

57
 A. By Whom the Performance of the Contract is made
 The performance of the contract is made in general by
• the contracting party himself(personal obligation like doctors) or
• the party authorized by the debtor, or
• the party authorized by the law, or
• the party authorized by the court.
 Sometimes, contract is required to be performed only by the
debtor, not by any other third party.
 The debtor shall personally fulfill the obligations in two cases:
(Art1740)
• If the contract involves personal qualification or skill of the
debtor, or
• If the contracting parties exclude the performance of the
contract by any persons other than the debtor.
58
 B. To Whom the Performance of the Contract is made
• Pple: to the creditor.
• Exception: if the creditor is not in a position to receive
the performance, the performance can be made to the
person so authorized by the creditor, or by the law or
by the court.
• Payment (performance) to incapable creditor or
unauthorized third party is invalid and may lead to
double payment.
C. Time and place of performance.(art 1756 )
• Pple: agreed time and If no agreement,
 immediately or
 As soon as creditor requires 59
 D. The Place of Performance (Article 1775)
• Pple: agreed place. If no agreement:
• place where the debtor has his normal residence at the
time of the conclusion of the contract.
• In case of definite thing, performance (delivering of the
thing) should be made at the place where such thing
was located at the time of the conclusion of the
contract.
II. Transfer of Risk
• If the debtor is bound to deliver a thing, he bears the
risk of loss, damage, stolen … of such thing until
delivery is made.
• The risk shall transfer to the creditor where he is in
default for not taking delivery. 60
III. Variation of terms of a contract
• Parties can vary the contract in both or all of them agree.
• But the variation should follow the original contract as
regards to the validity requirements.
IV. Non-performance of contractual obligations
• It is failure to perform contractual obligation.
• Situations that lead to non-performance are:
 When the debtor fails to perform the contract totally;
 When he performs in part;
 When he performs improperly; and
 When he performs in delay.
There are some remedies available in such case. But…..61
 --

 But, before resorting to the available legal

remedies, the creditor must put the debtor in
default
 =tell that the obligations are due and to the
sanctions that the debtor may incur if he does not
perform the contract.
 situations where default/nonpayment notice isn’t
necessary are:
I. When the time for performance is fixed (stipulated)
II. If the obligation is to refrain from doing certain acts
III. If there is anticipatory breach of the contract
IV. When the parties agreed and included terms in their
contract not to give notice. 62
 --

The three legal remedies for non performance after notice are:-
(1771)
A. The right to demand Specific (or Forced) Performance
 two conditions for are:
• the special interest to the creditor in the performance; and
• The forced performance does not affect the personal liberty of
the debtor.
B. The right to Cancel or require Cancellation of the Contract.
This can be made by:
• the court (judicial cancellation) or
• the creditor himself (unilateral cancellation).
C. The right to require Damages (Compensation).
• This remedy can be exercised only if there is an economic loss
incurred by the creditor due to the non performance of the 63
 --

• But, exception is case of force majeure.

Force majeure means:
• Unforeseeable act of a third party for
whom the debtor is not responsible,
• An official prohibition preventing the
performance of the contract,
• A natural catastrophe such as an earth
quake, lightning or flood, or
• The death or serious accident or
unexpected serious illness of the debtor.
64
 V. Extinction of obligation
a) Performance of Contract
b) Invalidation of Contract.=due to non-compliance with the
essential conditions ( either void or voidable)
c) Cancellation of Contract=due to non-performance of contract
d) Termination of the Contract(1819-1825) = may be
1) Termination of contract by the agreement of the parties
(contractual termination);
2) Judicial termination of contract (termination by court of
law)1823-24; and
3) Unilateral termination of contract.
e) Remission/reduction of Debts =Art1825
f) Novation= conclusion of new contract with a view to substitute
the existing contract. Conditions are:
• A valid existing obligation (the former obligation); 65
 ---

• The new obligation must be valid;

• There must be a new object or cause (nature) in the
later agreement; and
• The parties have to intend to create a new obligation
through novation.
g) Set-Off
• each of the parties are creditors and debtors to one
another.
• three forms of set-off are:
1.Automatic set off (set off by operation of law)
 following requirements should be met:
• Both debt must either be money debts or relate to a
certain quantity of fungibles of the same species;
66
 --

• Both debts must be liquidated (must be certain as to their amount );

• Both debts must be due(matured );
• The debts should not be those having special nature requiring the
creditor to be actually paid such as maintenance owed by the
person obligated or wages which are necessary for the livelihood of
the creditor and his family nor they should be debts owed to the
state or municipalities; and
• The subject matter to be set of must not be things unjustly deprived
nor a thing given on deposit.
2. Contractual set off =the parties are allowed to agree to the
effect that set off may occur even when the conditions for set off
are not met.
3. Set off by the court of law (judicial set off)
h) Merger=one person in respect of the same debt becomes both
creditor and debtor.
i) Limitation of Action….period of limitation 67
 Quzi=2
Discuss the following Questions
• what do we man by in person performance and
what are the justifications behind such
performance? (3%)
• can you enumerate all the possible instances of
non-performance of a contract?(3%)
• Can you enumerate all the possible grounds for the
extinction of contractual obligations? (4%)

68
 Unit Five: The Law of Agency
5.1. Definition: It is a legal relationship between two parties, the agent and the
principal in which the agent is authorized to act on be half of the principal in
performing juridical acts with third parties.(3 parties)
Law of agency is branch of business law that studies about mechanism of carrying out juridical
acts by proxy/representation.
5.2. importance of agency
• Agency relationship is important to overcome some limitations of business
transaction. These are:
avoids time limitation
minimizes cost of transaction
uses to get expertise knowledge
helps people to exploit the reputation of others
overcomes the legal or physical incapacity
avoids publicity. i.e. some times your identity may affect your business. For
instance, if the principal is too rich and wants to buy some property his
richness may affect the transaction (increase in price). To avoid this, the
principal can authorize an agent to act on his behalf.  69
 --

5.3. Types of Agency

 It may be: 1.disclosed agency & 2.undisclosed agency.
1.Disclosed agency -Art 2189(1)
 The agent acts on the name of the principal. Means the
identity of the principal is disclosed to the third parties
 It is also called direct representation (complete agency).
 there is a direct relationship between the third party
and the principal.
 The agent is here to facilitate the formation of the
contract and he is not liable for non-performances of
the contract.

70
2. Undisclosed agency
 the agent acts on his own name but on behalf of the principal.
 A gent does not use and expose the name of the principal
 The agent who acts on his own name shall personally enjoy
the rights and incur the liabilities driving from the contract. i.e.
This mode of representation does not bring any effect of
agency.
3.Partially disclosed agency
 The agent instead of disclosing the name and identity of the
principal may communicate to the third party, merely his
representative character. Art. 2197(1)
 This kind of agency doesn’t bring agency relationship in Ethiopia.
 The third party can ask the agent personally for all liability
arising from the contract.
71
 5.3. Sources of Agency
• There are two sources of agency: the law and contract.
(Art.2179)
A. An agent by the operation of the law
• It is not an agency by a prior agreement of the parties
• Rather it arises by the order of the court upon
application(case of interdicted persons) or by law (father or
mother as tutors of minors).
• It is implied regardless of express or implied intentions of the
parties.
• E.g. Parents are legally empowered to represent their minor
children. The father and mother are, during their marriage,
jointly guardians and tutors of their minor children. As a tutor
they jointly represent the minor to administer his pecuniary
interest and property. 72
 B. Agency created by contract

• Contractual agency is special contract made between principal and

agent, in which principal gives right/power to agent to deal with third
party and principal would be liable for non-performance of contract
concluded between agent and third party.
• It is created by mutual consent of two parties.
• As a contract, all the validity requirements of contract are required in
its formation.
• The authority given to the agent by principal may be express or
implied.
• Express Authority given may be written or oral.
• implied authority is given to perform those acts which are usually
and customarily performed in conducting the transactions or
activities expressly authorized by the principal.
• agency relationship is inferred from conducts of agent or principal
without verbal expression as it is difficult to enumerate all activities
73
 5.4. Scope of Agency

• It may either be special or general as provided by

Art 2202(2) of the Civil Code.
I. General Agency
• Agency is conferred in general terms like all my
affairs, anything related to my property, any affairs
which I am called to perform etc.
• Here agent can’t be permitted to carry out certain
activities that demand strict decision-making.
• It is limited only to the management of the said
affairs called acts of management(Art.2204).(Art.
2203 )
74
 --

 acts of management means:-

Acts done for the preservation or maintenance of property;
Leases for terms not exceeding three years
The collection of debts
The investment of income;
Discharge of debts
• Similarly:
the sale of crops;
the sale of goods intended to be sold; and
The sale of perishable commodities and other similar acts
are categorized as acts of management.
 purpose of conferring power to conduct these activities for
an agent protects the loss of the rights of the person
represented(principal). 75
 --

II. Special Agency

• it is given for particular affairs that may require
great care and that may affect the position of the
principal considerably.
• It is given to matters demanding special attention.
• It is known as a full authority because it clearly
discloses what can be done or cannot be done by
agent.
• It is narrower in scope as compared to general
agency.
• See Art. Art 2205
• Act done by agent outside scope of authority shall
not bind the principal unless he ratifies.
76
 5.5. Authorities of an Agent
• The authority may be actual or apparent.
I. Actual authority
• It is authority which in fact the agent has been given by the principal
under the agreement or contract of agency or by virtue of subsequent
ratification or by law.
• It exists in two forms: express and implied.
II. Apparent authority
• The agent’s authority here is the product of the principal’s conduct, his
conduct that the agent is authorized to act on his behalf.
• It emerges out because of different causes. e.g. lapsed agency document
not being taken back by principal, activities of agent or principal towards
3rd parties creating impression as to agency, but actually no contract of
agency.
• In Ethiopia apparent authority is not taken as an authority entitling the
agent to act on behalf of the principal.
• It does not bring any agency relationship in Ethiopia. 77
 5.6. Effects of Agency
Main: a contract which is made between the agent and third
party binds principal.
• a direct contractual relationship emerges out between the
principal and third party so far as agent acts within scope
(Art.2189 0f cc).
• This means agent neither acquires rights nor incurs
obligations.
Two conditions to this effect are:- the name test and scope of
representation.
 The agent must act in the name of the principal.
 the agent must act within the scope of the power granted.
• Where the agent acts in his own name either on his own
behalf or on behalf of the principal, it is only the agent that
is liable to the third party. 78
 5.7. Duties of Agent and Principal

I. Duties of Agent
a. Duty to follow the instructions of principal
b. Duty to Care and Diligence: He shall exercise the diligence
of bonus patter familias (good father) to the interest of
principal.
c. Duty to remit sums and make report: Maintaining books
and accounts is a vital for the proper performance of the
agent’s duties.
d. Duty to avoid conflict of interest: agent should act in an
exclusive interest of principal. For example, where the agent
that is authorized to purchase goods to his principal buys his
own property, the law supposes conflict of interest.
e. Duty not to delegate/transfer authority;
• The following are some of the exceptions:- 79
 --

Nature of activity:
When there is consent of principal
When there is emergency situation
f. Duty to act with strictest good faith and to
notify/justify any variation or revocation of a term.
NB. The above duties of agents are rights of principal.
II. Duties of Principal
 Duty to remunerate an agent contractually or
customarily:
 Duty to cover costs and expenses incurred by agent:
required to advance or to give the agent money
necessary
 Duty to release agent from liabilities: Duty of Indemnity
80
 CHAPTER six: LAW OF SALES

6.1. Meaning contract of sale

• A contract of sale is a contract where by 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. (Art.2266)
• Law of sales is a branch of business law that regulates
the relationship between the buyer and seller of goods.
• Includes rules pertaining to the formation,
performance and breach of contract of sale.
• It imposes certain duties on the buyers and sellers the
breach of which lead to some legal remedies.
81
 Elements:-
• Contract
• Two parties
• Deliver and transfer ownership
• Things=movable, materially existing goods called
corporeal chattels
• Price
NB.
 Benefit of law of sale is: it governs and helps the
movement of goods from the original maker to
the final user to fulfill social wants.
82
 6.2.subject matter of law of sale
 GOODS ( corporeal chattels) & prices
• Corporeal chattels are: things that have a material existence and can
move by themselves or by man without losing their individual character.
Book, table, etc. are examples of corporeal chattels.
Exception:
• special corporeal chattels like ships, cars, air planes- excluded
• sale of intrinsic parts of an immovable where such parts are, under the
contract, to be separated -included e.g. crops, materials of a building
under demolition or products of a quarry
• claims and other incorporeal rights embodied in securities to bearer Like
share and electricity- included
In general, the term “thing” in a contract of sale refers to:
• Tangible movables,=may be future, existing, or thing of 3rd party(Art.2270)
• Intrinsic parts of immovable,
• Claims and other incorporeal rights, and
• Natural forces of economic value. 83
 6.3.Performance of Contract of Sale
 this section deals with analyzing:
• the obligations of the seller,
• obligations of the buyer and
• common obligations of the seller and buyer imposed on the
parties by the custom, good faith and the provisions of the
law
6.3.1. Obligation of the seller
i. Obligation to deliver the thing and its accessories= transfers
of possession willingly.
• Accessories= “anything which the possessor or owner of a
thing has permanently destined for the use of such
thing”(Art.1136) e.g. charger to laptop
• Should be in accordance with the contract and the default
rules of the law. 84
 --

1. Modes of delivery :- three modes are:

 Actual delivery= directly handing over to the buyer or
his representative.
 Constructive delivery= assumed delivery is called a
constructive delivery but the thing remains with seller
or 3rd party already in possession of the thing
 Symbolic delivery= delivering thing representing the
thing sold or that makes possession of the thing
possible. E.g. bill of lading
2. Quantity and kind of goods to be delivered
• Pple: agreed quantity and kind
• Delivery of excess or short of (less) = non-performance
85
 --

• buyer may accept or reject

• Buyer is obliged to pay agreed price if there is
excess delivery
• Parties may agree about certain approximate
quantity” of specified goods.
• In this case seller has the discretion to decide the
exact quantity to be delivered unless agreed
otherwise. (Art.2275(1)) e.g. around 60 bottles of
soft drink
• The difference between the approximate quantity
may not 10 %for whole cargo and 5 % for other
86
 --

4. Place and time of delivery

• Pple: be delivered at agreed time and place. Unless non-
performance of the contract
• Regarding time, If no agreement, as soon as the buyer requires.
• be simultaneous with the payment of the price unless there is
contrary agreement
• so retain the thing until payment is made.
• If to be delivered during a given period, it shall be for the seller to
fix unless circumstance show otherwise
• Regarding place:
• if no agreement, deliver the thing at the place where, at the time
of the contract, he has his place of business or, failing such, his
normal residence.
• If sale relates to a specific thing and the parties know the place
where such thing is at the time of the contract, the seller shall
deliver the thing at such place. 87
 ii. Obligation to transfer ownership

• The owner has the right to use, possession, enjoyment and

the right to dispose of it.
• So, transfer of ownership means transfer of all these rights.
 T here are two ways of transferring ownership title:
• By law e.g. Succession and
• by contract e.g. by contract of sale and donation.
 Ownership transfers up on delivery.
 But transferor must be owner b/c person can transfer no
greater right in property than he himself possesses=a person
can’t have to transfer a better title than he has.
Exception is possession in good faith which exist at the time of
contract or buyer takes possession .
iii. Obligation to warranty title, defects, and non-conformity
88
 --

 Warranties may be:

1. express =by oral or written statement
• Seller has to be bound by
2. Implied warranty is imposed by law= minimum standard of
quality set by law
• Seller is obliged by law to offer a thing that has an average
quality.
 Warranty against:
 dispossession:
• the seller shall warrant the buyer against any total or partial
dispossession which he might suffer in consequence of a third
party exercising a right he enjoyed at the time of the contract.
(Art.2282)
• Exception: if at the time of the contract, the buyer knows that he
risks dispossession, the seller shall not warrant the thing unless
he has expressly undertaken to do so. 89
 --

 defects: guarantee thing sold conforms to the

contract and is not affected by defects.
 express Warrantee certain qualities or the good
working condition of the thing within period
agreed.
 it shall be sufficient for the buyer to inform the
seller of the defect before the expiry of such period.
 Exception: if buyer knew of the defects at the time
of the contract, he is not liable on his warranty
against defects. (Art. 2295/2)
 Implied warranties can be excluded or restricted by
the parties as they are not absolute.
90
 --

 Defect may be warrantable and non-warrantable

• A warrantable defect according to Article 2289 is
where the thing:
• Does not possess the quality required for its normal
use or commercial exploitation;
• Does not possess the quality required for its
particular use as provided expressly or impliedly in
the contract; (warranty of fitness for particular
use)or;
• Does not possess the quality or specifications
provided expressly or impliedly in the contract
(warranty of fitness specified in the contract)
91
 ---

non-conformity:
 Delivery of part only, or greater or lesser quantity or thing
different from or thing of a different species. (Art.2288/1)
than expressly or impliedly agreed. E.g. delivery of tape
recorder or JVC TV for Sony TV
Iv. Other obligations of the seller
• handing over of relevant documents and insurance.
6.3.2. Obligation of the buyer
Obligation to pay price:
Obligation to take delivery of the thing sold.
 Obligation to pay price: it includes to take any steps
provided by the contract or by the custom to arrange for
or guarantee the payment of price. E.g. For check
payment opening account is mandatory. 92
 There are different ways of determining price:
• It may be fixed by the contracting parties at the
time of contract.
• Where, in the contract of sale, price is to be fixed
by weight, the parties shall weigh the thing and
determine the price. It is the net weight that is
taken in to account.
• It is also possible to determine price based on
current market, the price to be effective is the one
prevailing at the time and place where delivery
takes place.
93
 6.3.3. Common obligation of the buyer and the seller
They are commonly shared obligations w/c relate to issues
of expenses, transport, custom duties and preservation of
the thing
 Expenses of contract, payment and transport
• The expenses of contract of sale and expenses of payment
shall be borne by the buyer.
• Exception: Where the seller has changed the address of his
place of business or residence after contract is made, he
shall beer any additional expenses arising from the change.
• Any expenses after delivery =by the buyer.
• expense of delivery such as the cost of counting,
measuring and weighing of the thing shall be borne by the
seller.
94
 Cont’d--
• Expenses of transport may be borne by the seller or
by the buyer.
• If the place of delivery is agreed by the parties or if it
is fixed in the contract, by the seller up to the place
agreed.
• Where the thing sold is to be transported to another
place than the place agreed for delivery, the buyer,
provided that such delivery is not to be carriage- free.
 Preservation of the thing
• when the buyer is late in taking delivery, seller shall
preserve at the expense of the buyer.
• In case of defective delivery, buyer shall preserve the
thing until returning at the expense of seller. 95
 6.4. transfer of risk
• Risk is the liability of loss/deterioration of a thing sold.
• The risks shall be transferred to the buyer from the
day when the thing has been delivered to him.
• Thus, risk and ownership are inseparable.
• Effect is the buyer shall pay the price notwithstanding
that the thing is lost or its value altered.
• Exception:- risk will not be transferred to the buyer
even after delivery if the thing does not conform to
the contract and the buyer has cancelled the contract,
require cancellation or require replacement of the
thing.
96
 CHAPTER Seven: LAW OF INSURANCE
7.1. definition of insurance
• may be defined in various ways.
 a risk transfer mechanism or an economic device whereby a
person, called the insured/assured transfers a risk of a possible
financial loss resulting from unforeseeable events affecting
property, life or body to a person called the insurer for
consideration(premium.).(individual’s point of view) .e.g. motor
insurance policy for the destruction of motor to be covered by
insurer.
 a mechanism through which a risk is distributed among the
group of persons who are exposed to the same type of risk
(from the point of insurer)
 Group of persons may be: persons who bear the risk of
suffering a financial loss as a result of events affecting property,
life or body. 97
 --

 NB.
• insurance does not and cannot prevent loss of property,
incurring civil liability, death, or injury or illness; rather it
provides financial compensation for the effects of misfortune.
• It involves insurer/assurer(The party who promises to
compensate) and insured/assured/policyholder (party for
whom protection is given ).
• The document containing the terms and conditions of the
contract of insurance is called the policy.
• A contract of insurance is a type of contingent or conditional
contract. i.e. performance of the obligation is dependent
upon the condition or contingency agreed upon by
them=materialization of the risk or risks specified in the
policy. .
98
 --

 Definition under Ethiopian law(Art.654 of com.

code):-
• read-sub 1
• Sub-2: insurance may be in relation to "damages"
covering risks affecting property or arising out of the
insured person’s civil liability (indemnity
insurance)= insurer’s obligation is to pay
compensation, which is always equal to damage.
• Sub-3: insurance may be in relation to human
person’s life, body or health called non-indemnity
insurance since human life or body does not have a
market value. here the insurer’s obligation is to pay
the amount agreed upon (the sum insured). 99
 Cont’d--

 NB---Since a contract of insurance is contract, principles

of the law of general contract is applicable.
• Particularly it must fulfill the following requirements:
(i) there must be an agreement between the parties
(ii) the agreement must be supported by consideration,
(iii) the parties must be capable of contracting (must have
capacity),
(iv) the consent of the parties to the agreement must be
free from defects,
(v) the object must be precisely/sufficiently defined, legal
or the object must not be illegal and immoral, and
(vi) the form indicated by shall be observed.
100
 7.2. Categories/types of insurance

1. Classification based on the nature of insurance given

a. Indemnity insurance
• The main essence is reinstating the insured to the
economic position where he/it had been before the
materialization of the risk.
• to pay compensation equal to actual damage that
may be full or partial
• See Arts 665(2), 678 of the commercial code
• cannot be assigned to another party without the
insurer’s consent since it is personal contract.

101
 Cont’d--

b. Non-indemnity insurance (See Art 689 )

• It’s in respect of human person’s life, body or health.
• Insurer is only to pay agreed sum
• A life insurance policy can be freely assigned to
anyone without the insurer’s consent because the
assignment does not usually alter the risk and
increase the probability of death.
2. Classification on the basis of Event
a. Life insurance-----applicable when the insured dies
b. Fire insurance----applicable when a fire accident
happens
c. Accident insurance----
102
 Cont’d

3. Classification on the basis of Nature of Interest affected

a. Personal Insurance----this type of insurance is
directly connected to the personal interest of the
insured. E.g. health, life insurance
b. Property Insurance-----it is highly connected to
various types of property. Eg motor, fire insurance
c. Liability insurance----refers to the risk of liability
towards third parties, which the insured is
required to pay, such damage to property
belonging to third person or injury or death of
third person or both in the case of accident.
103
 7.3. Principles of insurance
A. Principle of Utmost Good Faith
• It is mainly all about duty of disclosing material facts
before conclusion of insurance policy, alteration
existing policy or every renewal of old policy.
• Effect of non- observance of this duty by either party
is that contract becomes void able at the option of
the party not at fault, irrespective of whether the
non-disclosure was intentional or innocent.
• But, in case of innocent misrepresentation the
premium is refundable on the avoidance of the
contract.
104
Cont’d

B. Principle of Indemnity
• This principle applies to insurance of objects
(property insurances) and liability insurances.
• the insurer undertakes to indemnify the insured
for actual amount of loss or damage resulting
from specified perils in the policy and not to make
profit.
• Under no circumstances, is the insured allowed to
benefit more than the loss suffered by him b/c the
temptation would always be present to desire the
insured event and thus to obtain the policy
proceeds.
105
 Cont’d
C. Proximate Cause
• in order to make the insurer liable for a loss, the
nearest, immediate, or the last cause has to be
looked into, and if it is the peril insured against
• If loss is caused by the operation of more than one
peril simultaneously and if one of the perils is
excluded (uninsured) peril, the insurer shall be
liable to the extent of the effects of insured peril if it
can be separately ascertained.
• The insurer shall not be liable at all if the effects of
the insured peril and other peril cannot be
separated.
106
 Cont’d
D. Insurable Interest
• Insurable interest’ is an essential pre-requisite in effecting a contract
of insurance.
• The insured must possess an insurable interest in the subject matter
of the insurance at the time of contract unless the policy is void and
unenforceable.
• Development of law in this area has two primary purposes both
rooted in public policy:
 The first is the elimination of insurance as a vehicle for gambling, an
activity to which has been attributed idleness, vice, a socially
parasitic way of life, increase in impoverishment and crime, and the
discouragement of useful business and industry.
 The second is the removal of the temptation provided by a prospect
of a net profit through insurance proceeds to deliberately bring
about the event insured against, whether it is the destruction of
property or human life. 107
 Cont’d
E. Doctrine of Subrogation
• In case the loss has arisen out of tort or fault of a third
party, the insured becomes entitled to proceed against
both the insurer as well as the wrongdoer.
• However, since a contract of insurance is a contract of
indemnity, the insured cannot be allowed to recover from
both and thereby make a profit from his insurance claim.
• He can only make a claim against either the insurer or the
wrong doer.
• If the insured chooses to be indemnified by the insurer,
the doctrine of subrogation comes into play and as a
result, the insurer shall be subrogated to all the rights and
remedies of the insured against third parties in respect of
the property destroyed or damaged. 108
 Cont’d
F. Risk Must Attach
• It is a general principle of law of insurance that ‘if the
insurers have never been on the risk, they cannot be said
to have earned the premium.’
• For a valid contract of insurance the risk must attach.
• Means subject-matter of insurance ceases to exist(house
for fire insurance) or insured ship must be at the beginning
or on the way at the time of drawing policy.
• e.g. if the goods are burnt or the insured ship has already
arrived safely, at the time the policy is effected, the risk
does not attach.
• Effect is: the premium paid can be recovered from the
insurers because the consideration for the premium has
totally failed. 109
 Cont’d
G. Mitigation of Loss
• When the event insured against occurs, the policyholder is
obliged to take steps to mitigate or minimize the loss as if he
were uninsured and must do his best for safeguarding the
remaining property under the expense of insurer.
• Otherwise, the insurer can avoid the payment for loss
attributable to the negligence of the policyholder.
H. Doctrine of Contribution
• applies only to contracts of indemnity
• It applies In the event of loss under double insurance,
• Here the assured may claim payment from the insurers in such
order as he thinks fit, but he cannot recover more than the
amount of actual loss.
• Double insurance occurs where the same subject matter is
insured against the same risk with more than one insurer. 110
 --

I. Reinsurance
• It is an arrangement where insurer(original insurer or reinsured)
assuming larger risk from the direct insurance business may
arrange with another insurer(reinsurer) to off load the excess of the
undertaken risk over his retention capacity.
J. Third Party Interests in Liability Insurance
• Liability insurance originated solely as a protection for the interests
of the insured against loss suffered through liability to third parties.
• Historically, the injured third party could not bring a direct action
against the insurer even after obtaining a judgment against the
insured.
• Even the insured could not bring action on the policy until he had
sustained an actual loss by payment of the judgment debt to the
third-party.
• If the insured happened to be insolvent and judgment proof, no
claim could arise under the policy. 111
 --

• legislation has radically transformed the function of

liability insurance in many areas to make the injured third-
party with a cause of action against the insured a quasi
third-party beneficiary of the liability policy. Why? b/c
inequity of allowing an insured to pay premiums to an
insurer to keep liability insurance current and then to
allow the insurer to hide behind the shield of the
insolvency of the tortuous insured to prevent payment of
the judgment debt owed to the third-party victim.
It is qualified by that “No action shall lie against the
company until the amount of the insured’s obligation to
pay shall have been finally determined either by judgment
against the insured after actual trial or by written
agreement of the insured, the claimant and the company.”112
 --

• defenses that would bar collection of the

proceeds by the insured, such as fraud in the
application, non-cooperation in defense of a
tort action, or failure to notify the insurer of
an accident, will be of no effect in a direct
action by the third party tort victim against
the insurer.

113
 7.4. The Requirements to Carry on Insurance Business
• banks and insurance companies cannot be
established as private limited companies
• acquires a license from the National Bank of Ethiopia
for the particular class or classes of insurance.
• The person has to be a share company as defined
under Art 304 of the commercial code.
• The capital of the company to be established as an
insurance company must be wholly owned by
Ethiopian nationals and/or business organizations
wholly owned by Ethiopian nationals, and it must be
established and registered under Ethiopian law and
must have its head office in Ethiopia. 114
 --

• it must have a minimum capital of 3 million

Birr if it is applying for license to undertake
general insurance business i.e., insurances other
than insurance of persons, and 4 million Birr if it
is applying for a license to undertake long term
insurance business, i.e., insurance of persons
and 7 million where the application is to
undertake both classes of insurance. Such
capital has to be paid up in cash and deposited
in a bank in the name of the company to be
established as an insurance company.
115
 7.5. Significance of Insurance
A. Indemnification for Losses
• Insured are less likely to seek financial assistance from relatives and friends.
• allows businesses to remain in business and employees to keep their jobs,
suppliers will continue to receive orders, and customers can still purchase
the goods and services they desire.
• community also benefits because its tax base is not eroded.
B. Reduction of Worry and Fear
• if family heads have life insurance for adequate amount to cover the future
needs of their families, they are less likely to worry about the financial
security of their dependents in the event of their premature death.
C. Source of Investment Funds
• It is important source of funds for capital investment and accumulation b/c
Premiums loaned to businesses or invested in manufacturing, real
estate... sectors. These investments increase the society’s stock of capital
goods and promote economic growth.

116
 --

• As insurance is an efficient device to reduce risk, investors may also

be willing to enter fields they would otherwise reject as too risky,
and the society benefits from increased services and production.
D. Means of Loss Control
In pple main function of insurance is not to reduce loss but merely to
spread/distribute losses among members of the insured group, but
insurers are nevertheless vitally interested in keeping losses at a
minimum.
 insurance companies play a very important role in loss prevention
and control by :
• Development of fire safety standards and public education
Programs
• Recovery of stolen properties
• Investigation of fraudulent insurance claims and thereby deterring
intentional destruction of property and life
• The insurance industry also finances programs aimed at reducing
premature deaths, accidents and illness. 117
 --

E. Enhancing Credit
• it makes the borrower/debtor a better credit risk
because it guarantees the value of the borrower’s
collateral/mortgage or pledge/, and gives the
creditor /lender greater assurance that the loan will
be repaid. E.g
• For instance, when a house is purchased on credit
provided by a lending institution, the lender
normally requires a property insurance on the
house before the mortgage loan is granted.
• if a purchase of an automobile is financed by bank
or other lending institution motor vehicle insurance
may be required before the loan is given. 118
 7.6 Obligations of parties
 Obligations of an insurer
• it shall pay the agreed sum which shall not exceed the amount
specified in the policy. 663
• It shall act in good faith.
 Obligations of an insured
• To pay the premium at a specified time in the policy. 665
• To act in good faith. 667
7.7 Period of limitation
 Any claim arising out of a contract of insurance shall be barred after
two years from:-
• occurrence giving rise to the claim or
• from the day when the parties knew of the occurrence.
 In case of concealment or false statements, the period of limitation
shall run from the day when the insurer knew of the concealment or
false statement policy. 670 119
Chapter 8: The Law of Negotiable instruments
• 8.1. Introduction:
• 8.1.1. Definition:
• ‘Negotiable’ means ‘transferable by delivery’ and
‘Instruments’ means a written document by which a
right is created in favor of a person.
 Thus, ‘negotiable instrument’ refers to a document
containing rights that can be transferred by delivery.
 Any document incorporating a right to an
entitlement in such manner that it is not possible to
enforce or transfer the right separately from the
instrument. (Art.715(1) of Com. code )
 8.1.2. Characteristics of Negotiable Instruments

A. Transferability: capable of being transferred from one person

to another person by delivery with or without endorsement
depending on whether the instrument is to bearer or order.
• Bearer instrument can be transferred by the mere fact of
delivery of the document to the transferee.
• Order instrument can only be transferred by endorsement and
delivery of the instrument to the endorsee.
• instrument in a specified name needs the entrance of the
new holder’s name in the instrument and in the register held
by the person issuing the instrument to end the process of
transferring.
B. Inseparability of the Document and the Rights therein
• the instrument must be presented and surrendered for
payment to be collected. Article 716 of com. Code
 --
C. Better Protection for Holder in Due Course
• they are subject to rule of acquisition in good faith and
hence confer better right.
• “No claim for recovery may be made against a person
who has acquired a negotiable instrument in due course,
in accordance with the rules applying to negotiation.”
Art. 718
• the person to whom a current and apparently regular
negotiable instrument has been negotiated obtains a
good title (better protection) even though his transferor
had a defective title provided that it is negotiated to him
for consideration (for value);
• But a finder, a thief or a person who obtains negotiable
instrument by fraud does not acquire a good title to it.
 8.2. Types of Negotiable Instruments
i. Commercial Instruments ( right to the payment of money)
ii. Transferable Securities: share certificates, bonds and
debentures, life insurance policies etc. (right to Profit)
iii. Documents of Title to Goods: include bills of lading, air way
bills, warehouse goods deposit certificates (though it is
assimilated to commercial instruments) etc. (ow/p right)
Commercial Instruments
• They carry an unconditional order or promise to pay certain
sum in money and include:
bill of exchange;
promissory notes;
cheques;
travelers cheques and
warehouse goods deposited certificate.
 --

A. Bills of Exchange
• It is instrument containing an unconditional order, signed by the
maker, directing a certain person to pay certain sum of money only
to or to the order of, a certain person or to bearer of the instrument.
• Involve three parties: Drawer-Drawee-payee
• A bill of exchange is required by law to contain the following:
- The term bill of exchange
- An unconditional order to pay
- The name of the drawee
- The time of payment
- The place of payment
- The place of payment
- The name of the payee or to whose order payments to be made or
an indication that it shall be payable to bearer
- The date and the place where the bill is issued
- The signature of the drawer of the bill of exchange
 --

• Restrictions on maturity date of bill of exchange are:-

i. A bill of exchange payable at sight (on demand). This is
an instrument payable upon presentment (as of right or
beginning from the date of issue of the instrument.)
ii. A bill of exchange payable at fixed period after sight;
here the fixed period is to be computed from the date the
instrument presented for acceptance (sight) to the
drawee or protest for non-acceptance.
iii. A bill of exchange payable at fixed period after date.
Here, the fixed period is to be computed from the date
of issuance of the instrument.
iv. A bill of exchange payable at a fixed date. This is the
case where the bill will be due for payment on the date
fixed in the instrument.
 B. Promissory Note
• It is a written promise by maker to payee
• It involves only those two parties--the maker of the
promise and the payee
• Maker makes promissory note as well as executes it
• promissory note shall contain the following:
-The term promissory note
-An unconditional promise to pay a sum certain in money
-The time and place of payment
-The name of the payee or to whose order payment is to be
made or a statement indicating that it is payable to bearer
-The date when & the place where the note is issued
-The signature of the maker
 C. Cheques

is an unconditional order in writing drawn on a banker, signed by the

drawer, requiring the banker to pay on demand (at sight) a sum
certain in money to or the order of specified person or to bearer.
 It is similar with bill of exchange in many respects but d/t in that :
i. It is always drawn on a specific banker or an institution or
establishment regarded by law as banker; and
ii. It is payable on demand.
• The drawer shall fix the maturity date of the cheque only at sight which
is payable up on presentment.
• Any other method of determination of maturity date is not allowed.
 Involve three parties:
• Drawer: one who orders the money to be paid and has an account at the
drawee bank.
• Drawee: banker
• Payee: the party to whom or to whose order money is to be paid.
 --

• a cheque shall contain the following elements:

- An unconditional order to pay
- The name of the drawee
- The place of payment
- The date when and the place where the cheque is drawn
- The signature of the drawer
NB.
• It can only drawn when a cover(balance) with respect to the face value
the cheque is available in the drawer’s current account (i.e. cheque
operated account) with the drawee (bank).
• Unless there is administrative, criminal and civil sanctions. This could be:
1.Civil action by payee(holder of cheque)
2. Administrative measure by the National Bank of Ethiopia including
preventing drawer from getting any bank services for certain period of time
3. criminally liable under the criminal law
 8.4 Negotiation of Negotiable Instruments
• Negotiation is the way by which the third party is put in
possession of the instrument and is also entitle a holder
thereof to receive the sum amount thereon.
• It varies depending on whether the instrument is to order
or bear or in a specified name.
A. Negotiation of Bearer Instrument
• Bearer instrument is payable to the person who holds it
• It Transferred by the mere fact of delivery of the document
to the new transferee.
• Its Holder establishes his right to the entitlement as
expressed in the instrument by the sole fact of
presentment
• Holder not required to establish his identity.
 --

B. Negotiation of Instrument to Order

 Instrument to order is a document payable on the order
of the drawer or endorser.
 It is transferred by endorsement followed by delivery of
the instrument to the transferee.
 Endorsement consists of writing (making an order),
signing and dating on the instrument.
 It can be made at any where on the document.
 It must be unconditional.
 Possible ways of endorsement are:
i. Endorsement in Blank
ii. Endorsement in full
iii. Restrictive or Qualified Endorsement
 C. Negotiation of Instruments in a Specified Name
• document payable to the person(beneficiary)
whose name is indicated on it.
• Holder’s/transferee’s right to the entitlement as
expressed in the instrument is established by the
fact of his designation as beneficiary therein and in
the register held by the person issuing the said
instruments.
• They may also be transferred by delivery of a new
instrument in the name of the new holder provided
that the delivery shall be entered in the register.
 Chapter 9: Law of banking
Types of banking transactions in Ethiopia: -
 Art. Art 2 (12) of the Monetary and Banking Proclamation No
83/1994 and Art 2 (2) of the Licensing and Supervision of Banking
Business Proclamation No 84/1994
 Receiving money on deposit,
 lending money,
 receiving commercial instruments on deposit,
 accepting, negotiating/transferring, discounting commercial
instruments and other evidences of debt, and
 Buying and selling of gold and silver notes and foreign exchange.
 Hiring of safes
 Deposits

 a contract whereby a person agrees to deliver and transfer the

ownership of specified amount of money to a bank which agrees to
repay them under the conditions agreed up-on in the contract or on
the demand of the depositor.
 Exception:- deposit relates to “coins and other individual monetary
tokens” and where there has been an agreement that they shall be
refunded to the depositor in kind, the bank does not acquire the right
of ownership and cannot dispose it.
 The contract of deposit of funds results in the opening of an account in the
name of the depositor that may be:
 current account:- depositor has the right to dispose of the deposit at
sight or on demand=check operated account and non-interest bearing
 Saving account: the right of the depositor to demand repayment may be
limited and interest bearing. . /Art 897, 98. /
 Hiring of safes:
 It is taking charge of their customers’ valuables like jewelry, negotiable
securities, and documents of title to properties, will, and deposit them,
as they can be conveniently stored Or contract whereby a bank agrees
to place at the disposal of the hirer a safe or a compartment of a safe for
a specified period of time on payment of a rent.( Under Ethiopian law)
 two ways of safe keeping are:
1. By accepting the valuables for safe-custody or
2. By hiring out safe deposit boxes to their customers

 Limitation: hirer may not deposit things that are dangerous by

themselves such as explosives, inflammable things, narcotic drugs, guns
and legal tender currency, which is supposed to circulate, or deposited
through contracts of deposit of funds and not in hired safe, as this puts
the money out of beneficial use. Violation of this prohibition is a ground
for the cancellation of the contract by the bank. /Art 922/
 --

 What are obligations of banks in hiring safes contract?

 making sure that the safe and the strong room are not endangered by fire,
water or breach by unauthorized third parties
 give immediate notice of the danger to hirers and enable them to empty
the content of their safes before the risk materializes. /Art 920/

 allow the hirer or his agent to have access to the safe by providing him with
keys and identification cards during working days and of hours of
business. / Art 921/
 what are obligations of hirer?
 Pay the rent on time and return the keys to the safe by emptying the
contents of the safe upon termination or cancellation of the contract. /Arts
919 and 923/1//
 What will be the remedy for refusal to pay rent? Art 923/2//
 Bank lending
• See definition of loan in Art. Art 2471 of civil code:

 Form? see art. Art 2472, Art 2020-26

 Grounds of cancelation contract of bank loan by the bank:

 Death or incapacity of the beneficiary or
 Suspension of payment even where it is not established by a
judgment of a court or because of his gross negligence in the use
of credit granted. /Art 946/
 If contracts of loan is made for unlimited period
 Procedures for all types of bank loans:
 assess the credit-worthiness of the customer

 requiring a security or collateral in the form of mortgage or pledge

 Discounts
 a contract whereby a bank agrees to pay to a holder of a commercial
instrument or security having a future date of payment an amount which is
lesser than its actual value, against the surrender of the instrument and the
undertaking to repay the value of the instrument by the holder where
payment is not made at the maturity of the instrument. /Art 941. /.
 if the bank is not successful in its claim for payment at maturity, it will
have two alternative remedies, Art 944(1).
- It may proceed against parties liable on the instrument under Art 790 of the commercial
code, or the company which issued the share or bond, or
- It may proceed against the beneficiary of the discount on the of basis the contract of
discount (Art 941(1) and 943)
- It is limited to the amount of money it has paid to the beneficiary plus commission, interest
and expenses (944(2)).
 Credit transactions
• It is a contract between importer in need of payment of
price in foreign exchange through opening letter of
credit(documentary credit) and the bank where the bank is
obliged to open letter of credit if accepts the application of
importer.
• Here beneficiary of the letter is seller and correspondent
bank thereunder is obliged to pay him if accepted by taking
necessary documents from seller
• It is only needed incase if there is foreign trade.
 two types of document credits:-Art 961
• Revocable and irrevocable
• A documentary credit is presumed to be revocable in the
absence of a provision that clearly specifies that it is
irrevocable. / Art 962,961
 Chapter 10:- Employment Law
1. Contract of employment:
• Defn.: it is contract where a person (the employee) agrees, directly or
indirectly, to perform work for and under the authority of another (the
employer) for a definite or indefinite period or piece work in return
for wages
• Elements:
 It is contract: so, look validity requirements of general contract
 Employee: person who agree directly or indirectly to perform a
work…(Art.2(3) cum.Art.4(1))
 Employer: a person or an undertaking who employs one or more
persons …(Art.2(1)cum.Art.4(1)) of LP No.377/2003+Art.2 (3) of CSP
No. 262/2002
 employee will be required to render the said service
 Employer has prerogative to give instruction=direct, supervise and
control the manner and performance of the employee
 What is d/c between employer under LP & FCSP?
 2. Formation of Employment contracts
 Generally remember requirements under general k law
 Formation under LP: see Art.4-8
• LP provide minimum requirement of terms
• Left will be regulated by negotiation of parties or by collective
Agreement(contractual terms)
 Formation under FCSP: object
• there is little or no room for negotiation.
• conditions of work are rigorously regulated by law
 Other Laws:-
• Ethiopian employment regime is not purely dual. For example there is 3rd
regime like laws for police and armed forces, domestic workers,
management staff and others
 forms of k:
• Pple: No special form
• But k of employment under CSP has to be in written form: see Art.1724 of
C.C
 3. Terms of employment contract
• Duties of employee and employer:- may be express and
implied
Pple:- express-It is what is exclusively spelt out by the parties
under the k
• But laws provide implied terms(Art.12-14 LP and Art.61-65):
obligations of employer(12); obligations of employee(13 of LP);
prohibitive obligations of both(Art.14(1 &2))
• The duty to provide work and the agreed wage to the
employee is among the most important obligations of the
employer.
• to provide personal and faithful service with due diligence is
the most important duty of employee.
• The principle of non-discrimination among employees=hold for
employee
 4. Duties of employee
• Art.13 &14(2) of LP
5. Legally stipulated minimum working conditions
like Wages, Employment security, Normal Working
hours to employees
 Wages: two approaches:-
• determined by parties-LP
• prescribing minimum hourly/monthly wages to
employees-E.g. FCSP
 Working Hour: maximum daily-8 hr, weekly 48
hr 61(1)
 Leaves: sick, weekly, yearly, special, holidays…
6. Employer duties related to minimum working conditions like Safe and
Healthy working conditions, welfare, and protections for Special categories of
employees

• See Art. 92
7. suspension of employment k:
It means:- interrupt the obligation of:
a) the worker to perform the work;
b) the employer to pay wages, other benefits and
allowances unless otherwise provided for in this
Proclamation or in the collective agreement.
Grounds:Art.18 of LP
 8.TERMINATION OF EMPLOYMET contract
• Grounds of termination:-
• General: can be initiated by:
1.Worker
2.Employer
3.by law
4.Collective agreement
5.By agreement of parties
 Grounds of termination
• LP-Art.24-32

 termination by law (Art.24)

 termination by the agreement of the parties (Art.25)

 termination at the initiation of the employer-(dismissal)-(Arts.27, 28, 29
& 30)
 Without notice or summary dismissal (Art.27)

 With notice or ordinary dismissal (Art.28)

 Group termination or lay off (Arts.29&30)

 termination at the initiation of the employee-(resignation)-(Arts.31, 32)

 Resignation with notice/ordinary resignation (Art.31)

• Resignation without notice (constructive dismissal) (Art.32)
 --

• FCSP

 resignation (Art.78)
 termination due to illness (Art.79)
 termination on grounds of inefficiency (Art.80)
 termination due to force majeure (Art.81)
 nullification of employment (Art.82)
 retrenchment (Art.83)
 termination on disciplinary grounds (Art.84)
 retirement (Art.85)
 termination on the ground of death (Art.86)