Business Law of Ethiopia Lecture Notes PDF

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Business Law of Ethiopia Lecture Notes
Business Law (Addis Ababa University)
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CHAPTER ONE
INTRODUCTION TO LAW AND THE LEGAL ENVIRONMENT OF
BUSINESS
1.1. Meaning of Law and Schools of Jurisprudential Thought
 There have been and will continue to be different definitions of law. Various renowned scholars
and jurists have so far been making their own assertions of what law is, and almost none of them
concur on the definition of law.
 Starting from Plato and Aristotle down to the 21 st century different scholars have tried to give
their own definition of the term ‘law’. But so far no universally acceptable and an all-convincing
definition has been found.
 For instance, the Greek philosopher Aristotle for instance thought of law as a “pledge that
citizens of a state will do justice to one another”. Aristotle’s student, Plato, asserted that “law
was a form of social control”. The famous US Supreme Court Justice Oliver Wendell Holmes
on his part contended that “law was a set of rules that allowed one to predict how a court would
resolve a particular dispute”
 In jurisprudence, or the study of law, the broad statement concerning the nature of law is the
point of departure for all legal scholars and philosophers. Legal philosophers and scholars
frequently disagree on what the proper function of law should be and their disagreements have
produced different schools of jurisprudence, or philosophies of law. The most important schools
of thought are:-
 The Natural Law School (theory)
 The Positivists (Imperatives) School of thought
 Realists School of thought (Legal Realism)
 Marxist Theory of law (Marxist legal thinking)
1. The Natural Law School: -
It is the oldest of all schools of thought. It originated in ancient Greek. It was developed in
Greece by philosophers like Heraclitus, Socrates, Plato and Aristotle and later followed by other
philosophers like Aquinas, Hobbes, Locke, Rousseau, and Kant. According to this theory, there
are two types of law that governs social relations. One of them is made by person to control the
relations within a society and so it may vary from society to society and also from time to time.
The other is the one that are not made by persons but controlled all human beings of the world.
Such laws do not vary from place to place and from time to time and even used to control or

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weigh the laws made by human beings. These philosophers named the first group of laws as
positive law and the later ones as natural laws.
To put it differently, according to the philosophy of followers of this school of thought there are
two sets of laws that govern the relation of the human society. These are Natural law which is
eternal and unchangeable and the man made law which differs in place and time. The natural law
is a set of rules that are given by super natural power- God- in the form of justice and morality
and it is to serve as a standard against which man made laws are to be tested for their validity.
Natural law theory has served different societies in many ways. The Romans used it to develop
their laws as jus civile, laws governing Roman citizens, and jus gentium, laws governing all
their colonies and foreigners.
Despite its contribution, however, no scholar could provide the precise contents of the natural
laws. As a result it was subjected to criticisms. The problem with this theory is that, as stated
above it presupposes that law is a set of rules, which is just and morally correct. But this is not
always the case. We have ample of evidences and historical facts, which illustrates that
sometimes law may be contrary to logic and justice. For instance the extermination of millions of
Jews by Nazi Germany and the 1975 proclamation in Ethiopia which nationalized without
compensation major means’s of production and distribution owned privately were done by
issuing law, which are by no means consider as logical, just and morally correct. Who is to judge
a certain law as just or unjust or as morally correct or immoral and by what parameters is the
other unanswerable question of this theory of law. A given rule may be just for one person and
may appear for another person unjust. We do not have commonly acceptable standard to say
something just or unjust, right or wrong.
2. The Positivist School
According to this school of thought there can be no higher law than a nation’s positive law. In
the positivist perspective, the law is the law and must be obeyed irrespective of its content. The
merits and demerits of a particular law can be discussed and laws can be changed in an orderly
manner through a legitimate law making process. But as long as a law exists, it must be obeyed;
and whether a given law is good or bad is irrelevant in so far as it has assumed its status
following a duly constituted procedure.
A typical definition adopted by this school of thought is that: “law is a command of a political
sovereign backed by sanction”. In this definition we can see three important elements. That is
law is a command, that it is a command of a political sovereign and thirdly that is backed by
sanction.
This theory of law has its own positive and negative sides. The positive side of this theory is
twofold. I.e. requiring all laws be written and curbing judicial discretion. Despite these, this
theory has various defects. First it equates all laws with commands, which is not always valid.

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There are, for instance, right or power conferring rules which are not in the form of command.
Take the provision of constitution which states that everyone has the right to life or the right to
marry and found family, which are not commands rather they are enabling rules.
Another pitfall of this theory is that it associates all laws with a sovereign political authority.
But we do have laws which do not emanate from political sovereign. These are customary laws
that developed out of repeated practice and International laws which meant to regulate relations
between states and which do not have an internationally recognized sovereign organ that
legislate them. The final defect of this theory is that it views the sovereign as unlimited and
unaccountable to anyone where as today every government organ is legally limited and
accountable to the public.
3. Legal Realism
This theory has its basis in the common law legal system in which the decision previously given
by a court is considered as a precedent to be used as a law to decide future similar case. Realist
theory of law is interested in the actual working of the law. Accordingly, rules not put to use to
solve practical cases are not laws but merely existing as dead words and it get life only when
applied in reality. It believes that the lawmaker is the judge and not the legislative body (judicial
law making). In general, the principle of legal realism is the call for flexible application of laws
in a manner that conforms to the constant change in societal values and the recognition of
judicial activism.
Like all the other theories of law, the theory of legal realism hardly escaped from criticisms.
This theory views the courts as the real lawmakers. But this highly violates the constitutional
principle of separation of power and functions.
4. The Marxist Legal Thinking
The Marxian view of law is considerably associated with its politico-economic paradigm. This
conception of law is substantially different from other schools of thought in that it questions the
very origin and purpose of law and argued for its elimination. According to the Marxists, law
came into existence as a result of the emergence of a class society based on private property. The
formation of a class society is such that those who have appropriated private property constituted
one class and those with no private property constituted the other class (the lower class), and law
is an instrument of maintaining class differences and an oppressive tool by the economically
dominant against the have-nots.
The political and economic object of the Marxist thought is the transformation through socialist
state of the society to communist society where classes do not exist (and where private
ownership of means of production dies out). If the society is transformed to communist mode,

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there would be no more need of laws and state. While the Marxists regarded law, just like
positivists and realists, as state-made, they contended that such law would have effect only until
communism is realized and would wither away thereafter along with the state.
Generally, the lines of legal thought we have just explored above reflect the existence of
diversified notions regarding the definition of law. The major problem with these schools of
thought generally is that no comprehensive approach to define law is made. None of the
perspectives would attempt to look into law in its entirety; they are rather concerned with
specific aspects of law. Another problem coming up with an all convincing definition of law
pertains to its very nature. Law is a dynamic social norm. The society as a whole (whether
ideologically, philosophically, culturally, socially, economically, or politically) keeps changing
and law, as a norm of social regulation, accordingly would be subjected to a constant state of
flux. Therefore, providing a consensual definition of law in terms of these latter factors is
virtually impossible because these yardsticks would considerably differ from time to time, and it
is partly no surprise that the various jurists have not concurred on what law is.
1.2. Basic Features of Law
i) Generality
Law is a general rule of human conduct. Law is a general statement regarding a possible human
conduct.Its generality is both in terms of the individuals governed and in terms of the social
behaviour controlled. The extent of its generality depends on-on whom the law is made to be
applicable. Generality of the subject of the law may serve two purposes:-
Firstly, it promotes uniformity and equality before the law because any person falling under the
group governed by the law will be equally treated under the same law. Secondly, it gives relative
permanence to the law. Since it does not specify the names of the persons governed, the same
law governs any person that falls in the subject on whom the law is made to be applicable. The
permanence of law should be understood as if it is relative for there is no law made by person,
which can be expected to be applicable eternally.
ii) Normativity
Law does not simply describe or explain the human conduct it is made to control. It purports to
shape human behavior in the future. Law is created with the intention to create some norms in
the society. Law creates norms by allowing, ordering, prohibiting or by rewarding the good
social behaviour. Based on the position that they take towards specific behavior legal norms or
laws are classified into:
Permissive norm:- such rules allow or permit persons to do certain act. i.e, it is the choice of the
individual whether to do such behavior. No obligation is imposed.

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Directive norm: - this type of legal norms command individuals to do something. It imposes a
positive obligation. Refrain from doing such acts results in penalty.
Prohibitive norm: - such rules prohibit a person from acting a certain behavior. It states what
individuals must not do. Refrain or abstain is required here. There is punishment if individuals
performed these acts.
Rewarding norm: - these kind of legal norm entitle a person to receive some benefits in return
for the useful activity that an individual performed.
iii) Establishment in Permanence
The coming into force of law presupposes, at least presumably, its indefinite existence in the
future. It is unusual to fix a time-limit for the application of law. A frequently changing law
creates social instability and more prone to losing legitimacy. This does not mean, however, that
laws live forever. They have to be reasonably flexible to accommodate changing social realities.
iv) Intimacy with Human Behavior and State
Law is a social norm and its ultimate concern is regulation of the social behavior of human
beings. Law cannot be employed to govern relationships of other animate or inanimate things as
among themselves; it is not concerned with a claim between humans and other things either. The
intimacy of the law and the state is far from question. In reality, one cannot conceive of one
without the other (they are two inseparable aspects of the same system). One cannot have
validity or legitimacy without the other.
v) Strongly Institutionalized
The state is known for its strong institutionalization and this provides the law with
institutionalized system of enforcement. The state is constituted by centrally established
institutions of legislature, executive and judiciary entrusted with the tasks of law making, law
enforcement and interpretation of laws respectively. The combined operation of these organs
sanctions the law by a strong force.
1.3. The Distinction between Law and Other Category of Social Norms
Law is a social norm, but not the only one. There are also other values of normative significance
in a society. This “other social norms” category is filled perhaps by ethics, morality, culture,
religion, and the like. These ethical, moral, or religious values are normative in the sense that
they, just like law, prescribe what should be and what should not be and accordingly shape the
social behavior of man. To this extent, law possesses an identical attribute to that of ethics,
morality or religion. Nevertheless, there are noticeable differences between law and other social
norms, as provided below.

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One important issue that differentiates law from the other social norms is mechanism of their
enforcement. Law is backed by a strong sanction of the state and would be institutionally
enforced. Ethical/moral/religious norms on the other hand lack such external and effective
enforcement mechanism. Second, scope of application is a distinguishing mark between law and
the “other social norm” category. Law enjoys uniform and nationwide application. But the other
social norms are peculiar to particular groups and therefore suffer from extremely localized
(restricted) application.
Law can still be identified vis-à-vis other normative values of the society on the basis of the
mechanism by which it is created and changed. Law originates from a centrally established and
clearly defined institutional framework. The existence of clear institutionalized system would
make it easy to bring law into effect and to amend it. Non-legal norms, on the other hand, do not
normally have an easily traceable institutional origin for they are not made in an organized way.
A further important factor that can be regarded as a virtue of law over non-legal norms is the
exhaustiveness and clarity embedded in law.
Legal Norms Non-legal Norms
- General statement - General statement
- Normative - Normative
- Regulate social behavior - Regulate social behavior
- Supported by centralized and institutionalized - Lack centralized and institutionalized
mechanisms of enforcement mechanisms of enforcement
- Nationwide and uniformly applicable - Local in application
- Made by a centrally organized institution - Originate from the practices and beliefs
(parliament) (Centralized) of the society (Decentralized)
- Can be easily amended or modified - Cannot be easily amended
- Exhaustively written - Almost unwritten
1.4. The Functions of Law
Laws perform various functions in a society. They are the powerful weapons to attain diversified
societal needs. Laws are not ends in themselves, but rather they are the most effective and reliable
means at the disposal of the society. The simple and common sense response you might make is
perhaps that law is an instrumentality for maintaining order and security.
Generally, currently, the following are considered as the function of law:-
Social Control- members of the society may have different social values, various behaviours and
interests. But it is always important to control those behaviours and to inculcate socially
acceptable social norms among the members of the society. Law is one of the forms of formal
social controls.

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Dispute settlement- disputes are unavoidable in the life of society and it is the role of the law to
settle disputes. Thus, disagreements that are justiceable will be resolved by law in court or out of
court using alternative dispute settlement mechanisms.
Social Change- Law enables us to have purposive, planned, and directed social change.
Flexibility of law provides some measure of discretion in law to make it adaptable to social
conditions. So, some level of flexibility is inevitable in law to cope with social changes.
1.5. Classifications of Laws and Nature of Business Law
Classification of laws is the systematization of the law based on the subject matter for the
purpose of finding the relevant law more easily and determining whether different legal rules
were required depending on their area of application. No single classification system can cover
the large of mass of legal information. Consequently, those systems that have been devised tend
to overlap. A discussion of the best known classifications of law follows.
1. Public versus Private Law
Public law addresses the relationship between persons and their government, and between
various governments. It regulates the legal relationship in which a state as a public power
involved. It determines the organization and scope of public powers and their exercise in relation
to those who are governed. It defines a person’s rights and obligations in relation to government.
Furthermore, it also describes the various divisions of government and their powers. Criminal
law and constitutional law, for example, are generally classified as public law, because they deal
with persons and their relationships to government.
Private law governs direct dealings between persons. In other terms, private law regulates the
relationship between two or more private individuals. When persons deal or affect other persons,
such as in a contractual relationship, the law governing these relationships is classified as private
law. Agency, law of commercial paper, trade and business organizations, sales, torts, insurance
and any other area of business law is essentially classified as private law.
2. Substantive and Procedural Law
Substantive law includes all laws that define, describe, regulate and create legal rights and
obligations. This body of law establishes acts and situations producing effect at law. For
instance, a rule stating that promises are enforced only when each party has received something
of value from the other party is part of substantive law. So, too, a rule stating that a person who
has injured another through negligence must pay damages. Most of the bodies of law we have
highlighted above, both public and private, are substantive laws. Substantive law tells us what
our rights are.
Procedural law sets out the methods of enforcing the rights established by substantive law. It is
the method or system or means by which claims of persons are adjudicated and by which rights,

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privileges and duties are determined and enforced by the appropriate legal tribunal. Questions
about how a lawsuit should begin, what documents need to be filed, which court will hear the
suit, which witnesses can be called, how the judicial proceedings is conducted, and so on are all
questions of procedural law. In brief procedural law tells us how to exercise substantive heights.
Civil procedure, criminal procedure and evidence are typical examples.
3. Civil versus Criminal Law
Civil law is concerned with the duties that exist between persons or between citizens and their
government (the latter as ordinary legal person), excluding the duty not to commit crimes. It is
concerned with the rights and duties of individuals towards each other. Tort law, Contract law,
property law, law of succession and family law are example of civil laws.
Criminal law, in contrast to civil law, is concerned with wrongs committed against the public as
a whole. It is a part of the law which characterizes certain kinds of wrongdoing as offences
against the state, not necessarily violating any private rights, and punishable by the State.
Criminal law is always public where as civil law is sometimes public and sometimes private. In a
criminal case, the government seeks to impose a penalty on an allegedly guilty person.
1.6. Out-of-Court Dispute Settlement and its Virtues in Business
Traditionally, every dispute involving legal questions, civil or criminal, has been determined
formally by the regular law courts. Nowadays, however, this trend is a bit changing, for variety
reasons, in favor of what we call alterative dispute resolution (ADR) for civil cases. ADR
techniques provide a viable and preferable alternative than disposition in court proceedings.
Business-persons prefer out-of-court settlement mechanism because of certain virtues.
 First, court settlement is conducted in an extremely formalistic manner and is surrounded by

legal/procedural technicalities.
 Secondly, adjudication by courts entails greater cost litigation and consumes time and energy
than ADR.
 Third, a final judicial disposition of a legal dispute is usually accompanied by a winning and
losing spirit. Court settlement is solely driven by letters of the law and never admits give and
take circumstances.
1.6.1. Negotiation, Conciliation and Mediation

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Negotiation, mediation and conciliation possess certain important common characteristics when
seen vis-à-vis arbitration. These are all forms of ADR that are non-adversarial in nature.
i) Negotiation:- In this informal process, the parties air their differences and try to reach a
settlement or resolution without the involvement of independent third parties. Since no third
parties are involved and the process is so informal, negotiation provides the simplest and swift
opportunity of dispute disposition outside the court structure. It has to be noted here that the
presence of an attorney to represent one or both of the parties dose not in any way imply the
involvement of an independent third party.
ii) Conciliation: - Conciliation is a mechanism of dispute resolution in a friendly and
unantagonistic manner in which a third party, the conciliator assists the parties to a dispute in
reconciling their differences. Conciliation is often employed when disputants refuse to face each
other in direct negotiations; accordingly, the conciliator plays a facilitator role in that he/she
helps to schedule negotiating forums and carries offers forth and back between the parties.
Technically, conciliators are not to recommend solutions; practically, however, they often do.
But the final decision is taken up the parties themselves.
iii) Mediation: - In this process too, it is the parties who must reach a final agreement but being
assisted by the influential role of an independent third party, the mediator. The procedure of
mediation allows the mediator to propose solutions for the parties to consider. Usually, a
mediator will charge a fee for his or her services. In mediation, the mediator talks face to face
with the parties and allows them to discuss their disagreement in an informal atmosphere. There
are a few procedural rules established flexibly by the mediator and/or the parties for the proper
conduct of the mediation proceedings.
IV) Arbitration: - Arbitration is a bit more formal and court-like method of ADR. The peculiar
feature of arbitration is that a third party hearing the dispute decides the issue. Depending on the
circumstances and parties’ wishes, the decision rendered by an arbitrator may be legally binding
on the parties, or it may be non-binding. The arbitrator may also be called upon to prove
something without deciding the legal questions involved in the dispute (Art.3325 (2), Civil
Code). In arbitration, the arbitrator practically becomes a private judge even though he/she does
not have to be a lawyer. Frequently, arbitration proceedings are conducted by a panel of experts
from different walks of life.
Any commercial matter can be invariably submitted to arbitration.
The arbitration process – The arbitrator may be given the power at the beginning of the
arbitration process to establish rules that will govern the proceedings. Typically, these rules are
much less restrictive than those governing formal litigation. Regardless of who establishes the
rules, the arbitrator will apply them during the course of the hearing. In the typical hearing
format, the parties begin as they would at a trial by presenting opening arguments to the
arbitrator and stating what remedies should or should not be granted. After the opening
statements have been made, evidence is presented. Witnesses may be called and examined by
both sides. After all the evidence has been presented, the parties give their closing arguments. On

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the completion of closing arguments, the arbitrator closes the hearing. After each side has had an
opportunity to present evidence and to argue its case, the arbitrator will reach a decision. The
final decision of the arbitrator is called an award, even if no money is conferred on a party as a
result of the proceedings.
The role of the court in arbitration proceedings can be noticed at both pre-arbitration and post-
arbitration stages. In pre-arbitration stages, the court may involve to resolve issues of
arbitrability – the determination of whether the dispute can be brought to arbitration. At the post-
arbitration level, the court would have its hands in the arbitration for setting aside an arbitral
award when that is warranted. The court may nullify or render an award ineffective when it
violates public policy, contravenes public morality, or where similar public interest is at a stake.
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CHAPTER TWO
LAW OF PRESONALITY
Focus of the chapter
 The meaning of the term ‘personality’ from the perspective of legal environment and its
conventional meaning, and its legal effect
 The beginning, termination and attributes of artificial/legal/ personality.
 The commencement of physical personality as well as the meaning of capacity and grounds of
incapacity of physical persons.
 The termination of physical personality.
2.1. The Concept of Personality and its Effect
 The term person in law is different from its conventional meaning. Personality in law refers to
the authority accorded to a being (individual or organization) by law so that the latter would be
able to enter into various transactions having effect at law.
 In order to acquire rights and bear duties that are enforceable by the machinery of a legal system,
one needs to possess personality first. It is only beings that are persons in the eyes of the law who
can conduct legally binding transactions.
 The term person in its ordinary sense refers to human beings only. But for the purposes of the
law, not only individual human beings assume personality upon fulfillment of certain prescribed
conditions, but also artificial creations of the law are granted personality.
 Personality is a fundamental concept in law because no dealings of legal significance would

produce effects without it. Thus, the normal effect of personality is the ability to be a party to
legal transactions and perform various juridical acts (acts having effect in the eyes of the law).
 Personality will be granted for two categories of beings:-
I. Physical or natural personality: - it is a kind of personality which is possessed by every human

being, who is living beings. Every human being is a person. This, however, is only true since the
cessations of slavery. In the past, not all human beings were subjects of the law. Thus, these
days, with the abolition of slavery and its strict prohibition, virtually all human beings possess
personality and perform juridical acts.
II. Artificial personality: -These are a personality accorded to beings that do not have material or
physical existence. Associations, companies, organizations, partnerships, corporations or even
the state are only perceived by the law to exist. These fictitious entities are exclusive innovations
of the law and accordingly given personality because of the necessities of modern complex legal
transactions.
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2. 2. Beginning and Termination of Artificial Personality
How it Begins
 The way how artificial personality commences depends on the type of the artificial person itself.
There is no uniform rule concerning the acquisition of artificial personality. Generally, there
could be numerous mechanisms through which moral persons will begin to have legal life.
 Of these mechanisms, the famous ones are issuance of a specific legislation, and effecting
registration and requirements of publicity. For instance, public enterprises will start to have
personality upon the enactment of establishment regulations with no other conditions attached to
it.
 On the other hand, private business organizations need to be registered with a competent public
authority in order to acquire legal personality. They should also comply with publicity
requirements. So, acquisition of personality by business organizations is realized by meeting the
requirements of both registration and publicity, and only as a consequence of such acts that they
can validly undertake acts of civil life.
How it Ends
 The same way personality begins it will mostly end. That is to say, just like artificial personality
commences through issuance of statutes or effecting registration and publicity, it ends through
the enactment of dissolving law or the striking out of name of the entity from the public registry.
 To terminate the legal personality of a public enterprise, regulations would be issued and these
would serve for the purpose of ending the legal life of the enterprise. For instance a regulation is
issued to terminate the public enterprise nature of Meta beer factory. Artificial personality may
also end as a matter of fact where the object for which the entity is established becomes
impossible to achieve or where that organization is dissolved because of bankruptcy.
 Ordinary business organizations would cease to have legal life when they are canceled from the
registry and/or through the revocation of the license issued to them as evidence of personality.
 In all the above cases, the fictitious beings would die out and they can no more be parties to
transactions having effect at law. Any act done by these beings after their personality has
terminated is deemed never to have happened for all legal purposes.
2.3. Attributes of Legal Personality
Being recognized as a person by the law makes the person possess certain attributes. The most
noticeable of these attributes are the following.
i) Having a Name: - It may be very simple to coin a name and call a certain being by that. But
names do really affect the legal position of a person because they are mechanisms of identifying
the civil identity of a specific person in the society and of legally conferring/imposing upon it
powers and disabilities.
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 Furthermore, since use of a name can modify the legal status of a person, the law provides for
protective mechanisms against abuse and usurpation of the name by others. Generally, it is
through name as a manifestation of civil identity that a person in the eyes of the law can become
a party to a legal transaction, and thus it is a fundamental attribute of personality.
 For instance:- Kaldis Coffee , Dashen Beer Plc or Medroc Ethiopia Plc are business names that
have protection by the law of Ethiopia.
ii) To sue and be sued (in one's name):- To sue is to bring a legal action against another, and,
conversely, to be sued is to face a legal action brought against oneself by another. In both cases,
one attends a law court where rights and duties are often modified through judgments. Because
they involve alteration of one's legal position and determination of liability, suits should be
brought by and against the concerned person in its own name.
 For instance, Medroc Ethiopia Plc has an artificial personality. it brings legal actions against
others in the name of the company and not in the name of the owner. Similarly, others will
institute a legal action against the company using this name called Medroc Ethiopia Plc but not
in the name of the owners. This is because there will be always a clear distinction between the
liability of the company and the individual persons forming it.
iii.) Entering into Contractual Relations: - Since a legal person is an entity that can be a party to
legal transaction, it can enter into various contracts in its own name. A company can conclude a
contract with another company or with a human being, and the rights acquired as well as the
liabilities incurred because of the contract belong to the company itself, and not to the owners.
Iv.) Ownership and Administration of Property: - A legal person can exercise all property rights
to the exclusion of others and enjoys ownership and administration right over all chattels
belonging to it. Property belonging to a legal person is distinct from the property of its owners.
v.) Obligation to Pay Taxes: - A legal person is liable to pay taxes on taxable benefits and gains.
Since it is authorized to own and administer property and since it can carry on business, a legal
person pays taxes on its property and income in the same way human beings do.
 Note that all artificial or moral persons do not have a physical existence, and so they are without
the natural faculties of thinking, deciding or moving. That means in conducting the above affairs
they necessarily use the human agents. They use human mind and decision when they coin the
name by which they are identified; they bring suits and defend using human beings; it is again
human agents that exercise property ownership and administration, and sign a contract on the
behalf of the legal person. But all such acts performed by the human agent through
representation are deemed to have been directly undertaken by the legal person, and the rights
and duties arising therein would bind the legal person and not the human agent. Individuals only
facilitate transactions and they then step-out of the legal consequences.
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 The conferring of personality upon moral persons and accordingly authorizing them to own
property and conduct business in their own name give rise to the concept of limited liability. The
fact that the property and patrimony of the legal person is distinct from that of its owners means
that the legal person is liable to the extent of its property only. The liability does not extend to
the property/patrimony of the owners.
2.4. Commencement of Physical or Natural Personality
 The personality of natural persons begins in two ways. There is a rule which is generally
regarded as the starting point of personality, and there is also an exception to such rule.
 The Rule: - Most legal systems accept birth as a time when personality of a human being begins.
Similarly, Art.1 of the Ethiopian Civil Code provides “the human person is the subject of rights
from its birth…” So, in this respect the beginning of physical and legal existence are
simultaneous. Birth refers to the complete extrusion of the baby from its mother's womb either in
a natural way or by a medical operation. Birth alone is a sufficient condition to confer
personality under the Ethiopian law, and no other requirements are attached to it.
 The Exception: - as a matter of principle personality begins at birth, because of that unborn
human being is not a person in the eyes of the law and cannot have rights. But this general rule is
not without exceptions. Thus, personality may be granted to a merely conceived baby without
waiting for its birth for some purposes.
 The granting of personality to the unborn child (fetus) is subject to compliance with three
cumulative requirements. According to Art 2 of the Civil Code, “a child merely conceived is
considered as though born where its interest so requires provided it is born alive and viable”.
Thus, the three conditions are: the interest of the child must justify the grant of personality, the
child must be born alive, and it must be viable. These conditions are cumulative in the sense that
the missing of one suffices to deny the fetus personality.
 The interest of the child: -As an exception, personality of a fetus should be restrictively
construed and it is applicable only in circumstance that generally revolves around the interest of
the unborn child. The law has invented this fiction based on the justification that a child who has
already lost its father while being in its mother's womb should not be subjected to further pain of
losing a benefit which he would have secured had it been born before his father's death.
 In most cases, the interest of the unborn baby comes into picture where a father dies before the
birth of the child leaving behind property. If a baby has to wait until birth to acquire personality,
he will definitely lose the succession to its father's property because succession constitutes a
juristic act and being a beneficiary of succession necessarily requires personality. Opening of
succession is legally made at the death of the father and the property would devolve upon those
having the capacity and the right to succeed at such time.
 It is to be noted here that the merely conceived baby will be given personality (before birth) only
for the purpose of the particular interest that called for the personality. That means the unborn
child would be recognized as person only to benefit from the interest at hand, and he has to wait
until birth to acquire personality for all other juridical acts.
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Besides the interest of the child, there remain two conditions: -

 Alive birth: - In order to be considered as a person, the baby must be born alive. For instance,
personality will never be granted if the fetus is aborted or born dead.
 Viability: - it refers to the child’s ability to live or the potential of surviving. This is to exclude
impotent newly born babies or those incapable of surviving from the ambit of personality
because of some congenital factors. According to the civil code, it is a child that lives for 48
hours after its birth who is considered as viable (Art.4 (1)). No contrary evidence can be admitted
to disprove this presumption. The law also provides for another presumption in the negative that
a child that dies before 48 hours after its birth is deemed to be not viable. But this presumption is
rebuttable in that it can be shown to the contrary by proving the child was viable (Art.4 (3)).
However, we cannot challenge the non-viability of the child by using deficiency in constitution
as evidence. That is to say, if a child dies before 48 hours following its birth due to a disease he
caught in its mother's womb or due to other congenital biological deficiencies, it will be
conclusively deemed not viable. However, external factors that may have caused the death of the
child before 48 hours can be used to disprove the presumption of non-viability. If, for instance,
the baby dies on the 43rd hour after its birth because of mishandling by nurses or by hunger or
due to a car accident that occurred while it was being taken home from hospital, all such can be
employed to challenge the above presumption by proving that the baby would not have died had
it not been for the extraneous factors.
2.5. Capacity and Incapacity of Physical Persons
 Capacity refers to the authority to enjoy and exercise rights and duties by oneself. In its legal
sense it is the ability of physical persons to exercise their rights and discharge their duties by
themselves. Capacity is a natural consequence of being recognized as a person before the law.
However, even if personality is a necessary condition for capacity, it is not a sufficient one to
enable one to personally carry out juridical acts. Certain conditions may incapacitate individuals
who still possess personality. Capacity or incapacity is usually thought of regarding two aspects:
holding rights and duties, and exercising rights and duties.
 The principle governing the holding of rights and duties by physical person is that as soon as
personality begins all rights and duties are held by an individual. This means that as far as the
holding or enjoyment of rights is concerned, capacity is not only the rule but an absolute rule. It
can be inferred from Art. 1 of the Civil Code that entitlement to rights and duties under the civil
law belongs to all individuals by the fact of birth without any other condition attached to such
holding.
 Capacity is the rule even in the case of exercising rights and duties a physical person holds. Since
holding rights and duties is meaningless without the authority to exercise same, the full exercise
of rights and duties in principle coincides with their holding. In the same way that all physical
persons enjoy rights and duties, they are capable of exercising the same by themselves. But in
certain circumstances it deems compelling, the law may explicitly declare that person is
considered incapable to exercise rights and duties.
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 Since capacity is presumed in the exercise of rights and duties (incapacity is very exceptional),
the burden of proving the existence of incapacity falls on the party who claims the incapacity.
Thus, in all acts of civil life physical persons may be assumed that they are dealing with equals
who not only hold but also exercise the same rights and duties as them.
 Thus, a physical person may be exceptionally enjoined from personally exercising rights and
duties because of existence of certain conditions expressly recognized by the law. But even in
such case, the prohibition is not total, i.e. the person is not prohibited from exercising rights and
duties altogether but only his personal exercise is disallowed. He or she can still exercise rights
and duties through another person by way of representation. So, the effect of incapacity in
exercising rights and duties is that the exercise would be entrusted to a third person.
 Minority, judicial interdiction (insanity), foreign citizenship, and legal interdiction are
examples of incapacities recognized under Ethiopian laws.
A.) Minority: - Minority in civil law is an incapacitating condition that occurs because of age. A
person below the age of 18 years is called a minor and is incapable of exercising rights and
duties by him/her. The law interferes to protect minors from exploitation by others because of
immature intellectual faculty and lack of the proper degree of appreciation. Accordingly, any
civil act undertaken by the minor without authority is subject to invalidation. A minor may,
however, validly perform acts of daily life, i.e. simple and small matters that are quite frequently
done and that do not significantly affect the legal position of the minor.
 There are two institutions of representation recognized by the law to exercise rights and duties on
the behalf of the minor. One is guardianship, which is entrusted with the task of running the
personality affairs of the minor. A personality interest generally refers to those things necessary
for the proper physical and psychological well being and growth of the minor (food, clothing,
shelter, and schooling). The guardian is responsible for such interests of the child. The other
representative institution is the office of tutorship. Tutor is answerable for the protection and
management of the minor's economic (pecuniary) interests such as securing income, investing
same, running business, administering property and the like.
 The incapacity arising as a result of minority may terminate through a couple of ways. Firstly, a
minor will assume capacity to exercise rights and duties when he/she attains the age of majority
(18 years). Secondly, the incapacity of a minor may also come to an end through emancipation
even if the person is still below the age of eighteen. A minor may conclude marriage in
exceptional circumstances approved by the appropriate public body, and we call this situation
emancipation. This phenomenon suffices to end the incapacity of the minor and releases him/her
from the authorities of the guardian and the tutor.
B.) Judicial Interdiction (Insanity): - This is a court judgment that declares a person as
incapable because of mental conditions. The law steps in to protect the interests of persons with
deteriorated mental functioning as a consequence of insanity, infirmity, senility and the like.
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Insane persons are believed to be unable to understand the nature and consequences of their
actions because they have got a mental disease. Infirm persons are those with serious physical
deformities so that such deformities will have the ultimate substantial reduction in mental
functioning. For example, if a person is simultaneously deaf-mute and blind, he/she is deemed to
be infirm. Senility is deterioration in mental faculty because of old age. The court can declare the
interdiction of the above persons with mental deficiencies.
 Judicially interdicted persons will lose the authority to exercise rights and duties as of the date of
their interdiction. But they, just like minors, exercise rights and duties they hold through
guardians if the interest pertains to the personality of the incapable and through tutors where
the interest is a proprietary one.
Note that the offices of guardian and tutor have certain general features in cases of both minority
and judicial interdiction.
1. The offices are compulsory – it is a civil duty to become a tutor or a guardian and no consent is
needed.
2. The offices are in principle non-remunerative. A guardian or a tutor gives the service for
free.
3. The tutor/guardian must be a capable person. It is clear that an incapable person cannot
exercise representing others rights and duties that he/she cannot personally exercise.
4. The essence of the distinction between the offices of guardianship and tutorship is the
type of activity undertaken and it does not mean that two different persons should hold the
offices. Both functions can be assumed by a single person.
5. The offices are strictly personal in the sense that they cannot be delegated to the exercise
of third party or they cannot be transferred to next of kin through inheritance.
2.6. Termination of Physical Personality
There are two ways in which physical personality comes to an end. These are:-
1. Death, and
2. Declaration of absence
 Article 1 of the Civil Code also provides for the way personality of individuals ends. It states that
human person is the subject of rights from birth to death, meaning personality ends at death. In
this case too, natural death and legal death of a person are co-existent.
 Declaration of absence can, through interpretation, also result in a termination of physical
personality. The law says that if a person's whereabouts are not known for a certain period
defined by the law, a judicial declaration of absence will be made with the effect of death for all
legal purposes. One of the effects of this declaration is the opening of succession of the person
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and the remarriage of her/his spouse. But most importantly, absence with an effect of death will
end personality of the absence.
CHAPTER THREE
LAW OF CONTRACTS
Focus of the Chapter
- Discovering the nature of a civil obligation;
- Comprehending the essential principles of contracts;
- Identifying and appreciating the essential requisites in the formation of contracts;
- Noticing the effects of contracts;
- Exploring issues of performance of contracts;
- Explaining non-performance and identifying the remedies.
3.1. Some Remarks on Obligations
 There are all sorts of obligations imposed upon human beings: moral, religious or social duties. In the
area of social obligations, a special category is that of legal obligations which will have a binding effect
as opposed to the category known as natural obligations that are not compulsory or binding on the parties.
Legal obligations can be further split into penal and civil obligations. Our focus here is civil obligations.
 Civil obligation is a general reference to juridical acts having distinct legal effects that exist between two
or more persons in their private relationships concerning something that one party must undertake
towards the other party. This sort of obligation involves a legal tie between the persons it exists and it is
fully enforceable by means of a legal action under the protection and sanction of the state.
 A civil obligation consists of a juridical relation between two persons, of whom the one entitled to
demand performance on the obligation is called creditor and the one who is obliged to perform is called
debtor. Thus, the obligation and its correlative right take the name of debt and credit respectively. One of
the parties occupies the active position of creditorship and the other assumes the passive status of
debtorship.
 Every obligation has a corresponding right, but the nature of the right that corresponds to a civil
obligation and enjoyed by the creditor is particularly a personal right, i.e., it is a right against a designated
person(s) or a defined class of persons, as opposed to real rights which are enforceable against any one at
all. An obligation exists between persons, be they physical or artificial, while a real right involves the
association of a person with a thing and the person can pursue this thing into whosever hands it falls.
 The sources of obligations are generally law and contract. In contract, the will of the parties forms the
basis of the obligation; in the absence of a contract, an obligation cannot arise except by virtue of the law
and therefore all non-contractual obligations have the law as their sole source. The obligations originating
exclusively from the law may be further founded on civil wrongs or unjust enrichment.
3.2. Essential Notions of Contracts
 The Ethiopian Civil Code, a systematized legislative document covering substantial areas of the civil law,
is predominantly influenced by the Romano-Germanic civil law tradition. The Civil Code's draftsmanship
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with a Romano-Germanic jurisprudential background has established in contractual matters the theory of
the autonomy of will. This theory derives from the philosophy of economic liberalism, and embodies
three major consequences:
I. Contractual freedom: there is no obligation to contract; the contracting parties are free to
determine the scope of their contract; there is no special form for contracts because consent is sufficient.
II. Enforceability of contracts: a contract has the force of a law between parties. The contract is
compulsory even for the judge as he has to decide disputes by referring solely to the provisions stipulated
by the parties in their contract.
III. The relative effect of contracts : a contract has no bearing on third parties, or parties outside that
contractual engagement are unaffected.
 Contract is a binding agreement; it is a promise or set of promises for the breach of which the law gives a
remedy, or the performance of which the law in some way recognizes as a duty. Art 1675 of the Civil
Code defines contract as “an agreement whereby two or more persons as between themselves create,
vary or extinguish obligations of a proprietary nature''. From this definition we can have the following
elements of contracts:-
A) Contracts are agreements – they are based on compulsory exchange of consent. There must be an
agreement as to every aspect of the contract, and this agreement must be meant to be legally binding. But,
there are agreements which do not give rise to a legal effect of contracts. For instance, acts of courtesy, a
‘‘gentlemen’s agreement’’, a free performance of service, etc, are not contracts even if they are
agreements. Therefore, we can conclude that while all contracts are agreements, the vice versa is not true.
B) A contract needs at least two persons for its existence – There should be a minimum of two persons
for creation of a valid contract. Unilateral legal instrument such as will drawing an order of succession,
the acknowledgement of a natural child, or the resignation made by an employee are not contacts.
C) Privity – This is the principle of relative effect of contracts. It means third parties are not concerned by
the contracts made by other persons. The phrase “as between themselves” in the definitional provisions of
the Civil Code (1675) reveals the concept in that it is only parties to a contract who are entitled to the
benefits or burdened with the liabilities that arise from the contract, and not third parties. In this regard, a
contract is distinguishable from other collective legal instruments which may be imposed on persons who
did not take part in them. A decision taken by a general assembly of shareholders, for instance, does
create a binding obligation on the partners of the company through the operation of the majority rule even
though they had opposed the obligation. The basis of a contractual obligation is the equality of the
parties, an important aspect of which is its affirmation of individual liberties. Thus, the right to enter into
a contract is also the right not to enter into a contract.
D) The object of contracts is the establishment and performance of an obligati on – an obligation is a

legal tie, an action of being bound by a duty, and here it is a freely imposed or accepted duty. Entering
into a contract entitles the contracting parties to claim the assistance of public force, in the guise of the
courts and their officials, to obtain the performance of this contract.
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E) Contracts can be concluded for the creation, variation and extinguishment of obligations : An
obligation might be created, amended or terminated using contracts. The parties can, through the
instrumentality of contracts, not only create legal bonds that had not existed before but also vary existing
contracts between them or, if they want to, can totally extinguish obligation that had previously been in
existence.
F) Contracts strictly speaking only concern proprietary, or better, patrimonial issues: they are legal
means of modifying economic positions of persons – that is why the law regards contracts as concerned
with ''obligations of a proprietary nature''. Thus, agreements in respect of personal status, such as consent
to marriage, or divorce are not contracts because they are not pecuniary matters in their strict sense. It
does not mean that certain patrimonial obligations do not derive from such status-bound situations, such
as the payment of alimony. But it means that they are not governed by the general law of contracts.
G) There are clearly abundant types of contracts in economic interactions of persons: For instance, we
can consider the following lists (which is by no means limitative):-
- Onerous contracts in which both parties undertake towards one another an obligation
(e.g. sales contract), and gratuitous contracts in which only one of the parties undertakes
an obligation towards the other party (e.g. contract of donation).
- Adhesive contracts where one party can only accept or reject what the other party
proposes to him, and freely negotiated contracts, etc
3.3 Formation of a Contract
 Contracts emerge from the free will of the parties (contractual freedom). There is a vested interest for the
law, being cognizant of the possibility of abuse or prejudice of freedom to contract and of the significance
of contracts as instruments of economic performance, to intervene in contractual affairs and set certain
standards. To make sure the existences of such will the law imposes certain non-derogable requirements
in creating contractual relationships.
 The law regulates contracts in two ways. On the one hand, there are provisions of the law that are deemed
mandatory such as those regarding formation of contracts from which contracting parties cannot deviate
because of the need to ensure the free exercise of contractual liberty and due to public policy reasons. On
the other, the law provides for permissive rules that serve the purpose of filling the gap that may be left by
the contracting parties – parties are free to determine whatever they like on such regard but the law steps
in so as to fulfill the contract should the parties fail to do so. Accordingly, the law has regarded formative
requirements as essential and, therefore, compulsory upon the parties to comply with.
 Article 1678 of the Ethiopian Civil Code states that no valid contract shall exist unless:-
a) the parties are capable of contracting and give their consent sustainable at law (Capacity
& Consent)
b) the object of contract is sufficiently defined, and is possible and lawful (Object of
contract)
c) the contract is made in the form prescribed by law (Form of Contract)
3.3.1. Capacity
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 It is legal capacity of a person to perform juridical acts like contract. As discussed above either because
the person has to be protected (minors, judicially interdicted persons) or because he undergoes a
prohibition (legally interdicted persons, foreigners), the law decides that they cannot enter a contract.
They are incapable of binding themselves to somebody else. But if they do conclude a contract, the
sanction is the nullity of the contract as claimed by a person whose incapacity is proved.
3.3.2. Consent
 Consent is a defect-free mutual agreement by the contracting parties. It is a manifestation of freedom of

contract, and therefore is the basis upon which the entire law of contractual obligations rests. Consent
carries a double aspect: first, the parties must agree on the scope of their undertaking (there must be an
agreement on each and every important detail) and, second, there must be a willingness on the part of the
contractants to make their undertaking legally binding. It is only when this double condition is present
that the effectiveness of the binding nature of the obligation is guaranteed by the civil law.
 The existence of consent is determined having regard to custom, equity and good faith. The element of
intention to be bound is an important psychological aspect that relates to the contract as a whole. It refers
to the state of mind of the contracting parties to create a legally binding instrument. The mutual assent of
the parties is deemed to have final legal force only if it is accompanied by an intention to be bound by the
agreement. Mere intention to be bound existing only in the subjective state of mind of the parties does not
suffice for the purposes of the law. The law requires the intention to be bound to be declared so that the
willingness of the parties is externally manifested and this is deemed to simplify the work of the courts
and to reduce the possibility of disputes.
Offer and Acceptance
 Ordinarily, mutual assent (will) is evidenced by a contractual offer and acceptance. One party offers a
certain bargain to another party, who then accepts that bargain. The parties are required to manifest to
each other their mutual assent to the same bargain. A contract is therefore the meeting of the offer with an
acceptance. The two stages of offer and acceptance are sometimes much more slow to develop into a final
contract and might take a longer period. It is only the final offer and acceptance that truly manifests the
mutual consent of the parties for it is a finally made offer and acceptance that bind the parties.
 Offer:- An offer is a firm and definite (precise) proposal made by the offeror (the party who takes the
initiative to conclude a contract) to enter into a contractual engagement regarding a particular subject
matter. It expresses the willingness of the offeror to create a binding obligation. Three elements are
necessary for an offer to be effective at law: serious intention (firm proposal), certainty or definiteness,
and communication.
 An offer is firm when the offeror has a serious intention to become bound by the offer. But such serious
intent is not determined by the subjective intentions, beliefs, and assumptions of the offeror. It is
determined by what a reasonable person in the position of the person to whom the offer is addressed
would conclude the offeror's words and actions meant. Offers made in obvious anger or undue excitement
does not meet the intention test.
 For instance, suppose A and B ride every morning to a school in A's 50,000 Birr worth car. One cold
morning, both persons get into the car, but A cannot start the car. A yells in anger that he will sell the car
to anyone for Birr 10,000. The next morning B brought 10,000 Birr to take the car. Given these facts, a
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reasonable person, taking into account A's frustration and the obvious difference in value between the
market price of the car and the proposed purchase price, would declare that his offer was not made firmly
and that B did not have a contract.
 Another obvious non-offer category is constituted by advertisements, catalogues, price lists and
circulars. In general, these cases are treated not as offers to contract but as invitations to negotiate. For
example, a seller's price list is not an offer to sell at that price; it merely invites the buyer to offer to buy at
that price. In preliminary negotiations, a request or invitation to negotiate is not an offer. It only expresses
a willingness to discuss the possibility of entering into a contract. Similarly, when construction work is to
be done for the government and private firms, contractors are invited to submit bids. The invitation to
submit bids is not an offer, and a contractor does not bind the government or private firm by submitting a
bid. (But the bids that the contractors submit are offers.)
 In some cases, what appears to be an offer is not sufficient to serve as a basis for the formation of a
contract. Particularly problematic in this respect are “offers” to sell goods at auctions. In an auction, a
seller 'offers' goods for sale but this is not a contractual offer. Instead, the seller is only expressing a
willingness to sell.
 The second requirement for an effective offer involves the definiteness of its terms. An offer must have
reasonably definite terms so that a court can determine if a breach had occurred and can provide a
remedy. Courts are authorized to supply a missing term in a contract when the parties have clearly
manifested intent to form a contract. If the parties have attempted to deal with a particular term of the
contract but their expression of intent is too vague or uncertain to be given any precise meaning, the court
will not supply a reasonable term, because to do so might conflict with the intention of the parties.
 A third requirement for an effective offer is communication of the offer to the offeree, resulting in the
offeree's knowledge of the offer. Ordinarily, one cannot agree to bargain without knowing that it exists.
Non communicated offer is no offer at all. The offer must also be addressed directly to the offeree (the
person to whom the offer is directed for his/her consideration) so much so that if the offeree learns of the
offeror's intentions from some other source, no legal offer results because no offer has been
communicated. The manner of communication need not necessarily be in writing or oral; the law
recognizes even signs and conduct as legitimate media for communication of an offer in so far as there is
no doubt as to the making of the offer. Once an offer is properly made and made known to the offeree, it
will be binding and the offeror cannot engage in activities that violate the offer, and his consent has the
force of law upon him.
Termination of Offer
An offer addressed to the offeree does not remain in force indefinitely. It will cease either by the action of
the parties or through the operation of the law.
i) Termination by the Action of the Parties:- An offer can be terminated by the action of the parties in
any of three ways: by revocation, by rejection or by counter-offer.
(a) Revocation: - refers to the offeror's act of withdrawing an offer. Revocation becomes effective where it is
communicated to the offeree before the offeree knows of the offer. Revocation practically operates as a
mechanism of terminating offers especially where there is a time between the making of the offer and the
knowledge of the offeree. Thus, revocation of an offer sent to the offeree through post can be made by
using a faster means of communication (such as telephone) so that the offeree knows of the withdrawal
notice before he does of the offer.
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(b) Rejection: - this is the act of the offeree to terminate an offer. The offeree is free to accept or reject the
offer. If he elects to reject the offer and communicates same to the offeror, the offer comes to an end even
though the period for which the offeror agreed to keep the offer open has not expired.
(c) Counter-offer:- A rejection of the original offer and the simultaneous making of a new offer by the
offeree are called a counter-offer. It is required that the offeree's acceptance should match the offeror's
offer exactly. Any material change in, or addition to, the terms of the original offer automatically
terminates that offer and substitutes a counter-offer. The counter-offer, of course, need not be accepted;
but if the original offeror does accept the terms of the counter-offer, a valid contract is created (Art 1694
of the Civil Code)
ii) Termination by Operation of Law:- The power of the offeree to transform the offer into a binding
legal obligation can be terminated by operation of the law through the occurrence of the following events:
lapse of time; death or incompetence of the offeror or the offeree.
a) Lapse of time: - An offer which contains a time-limit terminates automatically by law when the period
of time specified in the offer has passed. The time-limit specified in an offer normally begins to run when
the offer is actually received by the offeree. If no time for acceptance is specified in the offer, the offer
terminates at the end of a reasonable period of time. What constitutes a reasonable period depends on the
subject matter of the contract, business and market conditions, and other relevant circumstances. An offer
to sell farm produce, for example, will terminate sooner than an offer to sell farm equipment because farm
produce is perishable and subject to greater fluctuations in market value.
b) Death or Incompetence of Either party: - An offeree's power of acceptance is terminated when the
offeror or offeree dies or is deprived of legal capacity to enter into the proposed contract. An offer is
personal to both parties and cannot pass to the descendant’s heirs, guardian, or estate.
Acceptance:-Acceptance is a voluntary act by the offeree that shows assent to the terms of an offer. It
refers to the pure and simple agreement given by the offeree to the offeror. In other words, acceptance
must be absolute and unconditional in the sense that one must accept just what is offered. This is the
mirror image rule which requires acceptance to mirror (reflect back) the full images of the offer. If the
acceptance is subject to new conditions or if the terms of the acceptance materially change the original,
the acceptance may be deemed a counter-offer that implicitly rejects the original offer.
 Acceptance must be communicated, and, conversely, non communicated acceptance is no acceptance.

Communication of acceptance does not have any special formality. The only requirement is to have no
doubt as to the intention to undertake an obligation. Thus, acceptance can be communicated expressly or
tacitly. The acceptance needs to be similar form if the offeror stipulates a special form of acceptance in
the offer. Such a specific term is deemed to be part and parcel of the offer itself, and therefore acceptance,
by definition, must conform to the special form demanded by the offer.
 Silence is a borderline and problematic concept with regard to acceptance and communication thereof.
The legal sense of silence should not be confused with the simple absence of verbal or written expression,
because an outward behavior other than speech can be equivalent to a tacit acceptance. In other words,
silence is the total absence of any form of expression, be it verbal, written or behavioral. The grand rule is
that silence does not constitute acceptance (Article 1682 of the Civil Code). The above traditional rule is,
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however, not without exception. According to Art.1683 and Art. 1684 of the Civil Code, for some
exceptional grounds silence might considered as an acceptance. But in principle silence does not amount
to acceptance. A timely and definitive acceptance completes the contract.
 Termination of acceptance. Even if it is said that the making of acceptance completes a contract, Art.
1693(2) of the Civil Code give a right for the accepting party to withdraw his acceptance. The timely
withdrawal of an acceptance amounts to terminate a contract which was validly formed unlike the case of
withdrawing an offer. Timely withdrawal of acceptance that terminates the binding effect of the contract
is that made before the acceptance reaches the offeror.
Vices of Consent
 Vices of consent are defects that vitiate the validity of consent so that consent fails to be given freely and
in full knowledge of the obligations is not valid consent. Article 1696 of the Civil Code provides for a
classical list of defects in consent – mistake, fraud and duress. The law also adds to the above traditional
“vice of consent” category the borderline problems of unconscionable contracts. The sanction of a vice of
consent is relative nullity. This means that where it is established, this type of contractual defect may only
be raised by the person it intends to protect. Such kind of cases needs to be decided by a court and the
mere fact that the vice exists does not automatically nullify the contract.
I. Mistake: - A mistake is ordinarily understood as an erroneous belief in the truth of a situation or in the
existence or otherwise of something. Legally, mistake constitutes a vice of consent, and serves as a
ground for nullifying a contract if the following two elements are fulfilled. First, the mistake must be
decisive, and, second, it must carry on a fundamental element of the contract. The mistake can be either
as to the legal nature or object of the contract or as to the identity or qualification of the person.
 Some mistakes may be non-essential in that they can be either neglected or corrected, and the contract
remains valid. Mistake regarding motive of the contractant is non-fundamental and does not give rise to
the invalidation of a contract because motive is something kept in the mind of party and not
communicated to the other. Arithmetical errors also produce the same effect (do not invalidate a
contract); they are simply corrected rather than invalidating the contract.
 A claim of mistake to invalidate a contract is subject to the requirement of good faith. When a mistaken
party invokes a mistake and succeeds in invalidating the contract, he has to make good the damage that
may be sustained by the other party.
II. Fraud: - it refers to deceitful practices, intent to deceive, and the innocent party’s justifiable reliance
on the fraudulent practice. Thus, mere false statements intended to deceive the other party to enter into a
contract do not constitute fraud because they lack “deceitful practice”. Exceptionally, however, the
making of false statements and failure to disclose important facts constitute fraud if the parties have a
relationship of trust and confidence. In the absence of the above relationships, no false statement or
silence would constitute fraud. There must additionally exist a “deceitful practice” that requires certain
acts or conduct of the faulty.
 For instance, if the used car salesman manipulates the odometer, i.e. the car accessory showing the
number of kilometers the car has so far traveled, so that it shows 50,000 kms instead of the real 150,000
kms, he has engaged in a deceitful practice to encourage the buyer in thinking this is a car with few
kilometers, and so in a better condition – and more expensive. If, however, the salesman says that the car
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has traveled 40,000 kms but did not manipulate the odometer, it is a simple lie (a mere false statement)
and the client can check easily, and therefore no fraud is committed.
 The fraud committed by a third party, not by a contracting party, has no relevance on invalidating the
contract. This is normally justified by the principle of privity of contracts (relative effect of contracts).
The exception to this rule is where a party to the contract knew or should have known of the contract.
 The normal consequences of fraud are invalidation and the claim of damages. Fraud vitiates consent and
results in a relative nullity of the contract – the contract will be invalidated when a fraud is claimed and
established by the affected party and where the court declares the invalidation.
III. Duress: - Forcing a party to enter into a contract by threatening the party with a wrongful act is
legally defined as duress. It involves conduct of a coercive character. For example, if A threatens to harm
B or his family unless he (B) signs a promissory note for the money that B owes, A is guilty of duress.
The threat need not necessarily be physical; it could also be psychological in the sense that it may be
directed against the honor or reputation of a contracting party. Again, duress is recognized where a threat
of physical or moral harm is directed against a contracting party’s nearest relatives – ascendants,
descendents and spouse. Generally, the threatened act must be wrongful or illegal in order to be regarded
as duress.
 Duress does not have to necessarily emanate from the other contracting party himself; it may be evoked
by a third party out of the contract. What is important here is that a force that vitiates the consent of a
contracting party is applied by another party, whether this other party is the contracting party or not.
 Duress should meet the requirements of ‘seriousness’ and ‘imminence’ in order to be effectively invoked
to invalidate the contract (Art.1706 of the Civil Code). Seriousness refers to the gravity of the danger
posed that would suffice to compel a person to conclude a contract. A danger is said to be imminent when
it is on the verge of materialization or where the danger is very near.
IV. Unconscionable Contracts: - these are a kind of contract that will allocate unfair and imbalanced
gain to the parties. Such is a contractual relationship in which one party exploits the other party
excessively. Whenever such kind of contracts is concluded, the laws of state will interfere in order to help
the weaker parties (a party who is exploited on the contractual relationship).
 The purpose of legislative interference here is to avoid cases of unconscionability by entitling the
economically exploited party to invalidate the unconscionable contract. Unconscionability exists, and
invalidates a contract, subject to the satisfaction of three conditions:
- the existence of “substantially more favorable” advantage to the stronger party;
- consent induced by the want, simplicity of mind, senility or manifest business inexperience of a
contracting party;
- justice requiring the invalidation of the contract
 Although judges have a wide discretionary power in the appreciation of issues of unconscionability, the
cumulative existence of the above three factors is deemed sufficient for the invalidation of the
unconscionable contract (Art.1710 of the Civil Code).
3.3.3. Object of Contracts
 Article 1678 of the Civil Code states that “no valid contract shall exist unless the object of the contract is
sufficiently defined, and is possible, and lawful …” The expression “object of the contract” as employed
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by the Civil Code refers to the obligations undertaken by the parties in a given category of contract. In a
sales contract, for example, the payment of the price by the buyer and the delivery of the good by the
seller are the objects (obligations) of the contract. The object of the contract is thus the legal result which
the parties wish to achieve.
 The freedom of contract is still upheld so that the parties are free to determine the obligations in their
contract. Parties have the right to define the nature and scope of the obligation they subscribe. But, failure
to define the object is a critical defect, and makes the contract void and null. Generally, object must be
sufficiently defined or determinable in order to create a valid contract.
 The object or obligation undertaken in the contract may take one of the three broad forms: to do, to give,
and not to do. In obligation to do, a party undertakes to act in a way required by the other. Such
obligations by themselves can be divided into two. One is obligation of result in which a definite end is to
be achieved under the contract, and the other is obligation of means in which a party undertakes to do his/
her best to achieve the result without guaranteeing the achievement of an outcome. In obligation to give, a
party undertakes to transfer a right (such as full ownership) on a thing to another party. Finally,
obligations not to do are negative obligations that require a party to refrain from acting in some way. Any
obligation in respect of all the above scenarios needs to be defined with sufficient precision.
 In addition to its sufficient definition, object of a contract must be possible of execution. A contract which
is impossible to perform cannot be enforced. Thus, if the parties stipulate an obligation that is impossible
at the time of the conclusion of the contract, the contract is deemed as if never created. Nevertheless, the
impossibility must be absolute and insuperable.
 Another requirement with regard to object of a contract is that it should be lawful and moral. An
unlawful or immoral object nullifies a contract, for it is self-contradictory for the law to recognize as legal
instruments contracts with unlawful obligations. In addition to legality, obligations should pass the test of
morality. For example, an agreement for murdering a person cannot be legally enforced for its object, i.e.
homicide, is a crime under the criminal law.
3.3.4. Form of Contracts
 Form is the outward appearance of the contract, and the way the will of the parties becomes apparent.
Article 1719 of the Civil Code provides that no special form is required to conclude a contract. But for
some kind of contracts the law imposes a certain formality requirement. In addition, parties can impose
upon themselves the compliance with a certain form. In both exceptional cases, formality must be
observed and parties are not free to set aside the prescribed formal requisite.
 Written contracts must be signed by all the parties. Signature signifies the individualized consent of a
party. Again, they should be attested by at least two witnesses, or in some cases they may be alternatively
authenticated by a public authority.
 One of the formality provisions (Art.1721) states that a preliminary contract has to be concluded in the
form of the main contract. Let’s assume that A, residing abroad, wants to conclude a contract of
insurance with an insurer in Ethiopia and intends to authorize an agent, B, to make a deal on his behalf
with the insurer. The contract of agency concluded between A and B is a preliminary contract because it
paves the way for the conclusion of the contract of insurance, the main contract. Now if the insurance
contract is made in writing, the contract of agency must also be made in writing.
 Art 1722 requires contracts for the variation of a contract to be made in the form of the main contract,
i.e. the varied contract. The main contract’s form thus extends to contracts made after its conclusion.
 The law also demands a special formality for contracts relating to immovable’s. Contracts concerning
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immovable’s include sale, mortgage, usufruct, lease, and partition amongst other things. All such
contracts relating to buildings and land have to be concluded in writing and need to be registered with the
authorities. Immovable property involves huge capital and the law imposes a written and registration
formality to ensure security of transactions regarding such an important asset.
 Again, contracts to which a public administration is party must be made in writing and be registered
with a court or notary. The law also demands a formality requirement with regard to contracts that last for
a longer period of time. For example, contract of insurance is given in the illustrative list of contracts for
a longer period given by the law, for it stays for a relatively longer time. Employment contract made for
an indefinite period of time also constitutes such a category. So, both insurance and employment contracts
need to be made in writing.
3.4. Effect of Contracts

 The general effect of a validly concluded contract is its legal enforceability. Once they have created a
contract, parties are obliged to comply with the terms the breach of which would entail a legal liability.
Thus, as clearly stipulated under Article 1731 of the Civil Code, the terms of a contract shall be binding
on the parties as though they were law.
 A contract may contain ambiguous provisions; it may also have terms that apparently conflict with each
other. In such times, the court is authorized to remedy the defective terms through interpretation having
regard to the common intention of the parties, custom, good faith and equity. But if the terms of the
contract are clear even if they may appear to be unfair, no interpretation is allowed.
3.4.1. Performance of Contractual Obligations
 Performance is the execution of the obligation as per the terms of the contract. In the normal course of
things, a contractual obligation is to be discharged through performance. Indeed performance is the
purpose for the contract is formed in the first place, and is deemed to be the natural consequence of a
contractual engagement.
 (a) Performance by Whom? : - the debtor is the one who is demanded to make performance. But
performance can be validly made by anyone authorized by the debtor, by court or by the law. The debtor
may authorize an agent to carry out an obligation. So, in principle anyone can perform the contract, and
there is no difference whether the contract is performed by the debtor himself or by a third party.
 Nevertheless, personal performance by the debtor may be an essential element of the contract. In such
case, no valid performance is made unless discharged by the debtor himself. It is of a special interest to
the creditor that performance be made by the debtor himself. For example, employment contract by its
nature needs performance by the employee himself.
 (b) Performance to Whom? : - Normally performance can be made to the creditor or a third party
authorized by the creditor, by the court or by law. Performance made to unqualified person is invalid in
the eyes of the law. For instance, a legally incapable creditor cannot receive payment personally, and such
payment shall not be valid unless the debtor shows that the payment has benefited the creditor or the
creditor confirms the payment.
 When there is doubt as to who the true creditor is, the debtor may refuse to pay and release himself by
depositing the amount with the court.
 (c) What Things (Goods or Services) are to be offered in Performance? : - Contracts are laws for the
parties, and what must be offered is exactly what they have agreed. A contracting party cannot discharge
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his obligation by offering his creditor something else than what he promised, even if the other thing is of
an evidently greater value than the thing agreed. The creditor is also entitled to refuse partial
performance.
 (d) Place and Time of Performance: - If the parties determine the place of performance, their agreement
is respected. But where no place has been agreed, a permissive provision of the law stipulates that
performance shall take place at the place where the debtor had his normal residence at the moment of
concluding the contract. This general rule is excepted regarding specific things. If no agreement is made
to the contrary, performance in respect of a definite thing shall be made at the place where such thing was
situated at the time when the contract was concluded.
 Similarly, the time of performance can be agreed upon by the parties. Where there is no such time-limit
is stipulated in the contract, performance would be made forthwith (immediately). There is no problem if
the debtor performs the contract immediately after its formation. But the creditor demands performance
from the other party after lapse of reasonable time.
(e) Other Issues Related to Performance
 As a rule, money debts are discharged in local currency, even if the amount is stated in the contract in a
foreign currency. Still parties are at freedom to reach an agreement to the contrary, or to exclude the
making of payment in local currency.
 As a rule, legal rate of interest that is to be paid on a debt is 9% unless the parties expressly stipulate a
different rate. Even if parties can stipulate interest and fix its rate in their contract, they cannot fix the
interest rate higher than 12%. Twelve percent interest rate is a maximum rate over and above which a
crime of usury is committed. In case parties fail to provide a rate or fix it above 12%, the legal interest
rate ( 9%) is due on the debt and is payable. (Article 1751 of the Civil Code).
3.4.2. Non-Performance of Contracts
 Non- performance of a contractual obligation refers to the breach or the non-compliance with the promise
made in the contract. The breach of a contractual obligation exists when a party totally fails to carry out
the obligation, if he makes fundamentally defective performance, or makes a delayed performance.
 The remedies of non-performance at the disposal of the creditor are not usually to be claimed
immediately after the expiry of the time fixed in the contract. However, the creditor is supposed to
comply with a procedural requirement before he rushes into the legal solutions. The first procedural
device is the giving of a default notice, so called because it is made after the normal performance failed
and is directed to the failing party. Sometimes default notice might not be necessary.
 Under the Ethiopian law, the creditor can demand the following remedies according to the
circumstances:-
 Specific performance, or
 Cancellation of the contract by court or by himself, and
 Damages caused to him by non-performance be made good (Art 1771 of the Civil Code).
1. Specific (Forced) Performance:-When a debtor fails to perform his obligations, the first legal remedy
available to the creditor is to request the court to force the debtor to perform. Specific performance as a
legal remedy is not something always awarded to the creditor whenever he demands it. The law states that
forced performance of a contract shall not be ordered unless it is of a special interest to the party
requiring it and the contract can be enforced without affecting the personal liberty of the debtor. If either
of these conditions is missing, forced performance cannot be had.
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 For instance, A concludes a contract with B, a singer, to entertain customers at his grocery. B fails to
show up for the performance. Now A cannot claim the forced performance of the agreement by B because
this affects B’s personal liberty. It has the effect of forcing B to personally appear on the stage and
perform without his will, and this undoubtedly denies B of his liberty.
2. Cancellation: - Cancellation is another remedy of non-performance available to the creditor. One has
to distinguish cancellation from invalidation of contracts. Both cancellation and invalidation presuppose a
problem with the contract – the former involves non-performance and the latter arises in contracts with
defective formation. The effect of invalidation and cancellation is the reinstatement of the parties to their
former positions. All have one thing in common: they are instrumentalities of extinguishing (breaking a
legal bond) obligations between the parties.
 Cancellation as a remedy for non-performance is in principle declared by the court. But as a matter of
exception, it can also be unilaterally declared by the parties, usually by the creditor.
i) Judicial Cancellation – This is the situation that the judiciary (the court) is vested with the power to
render a final and definitive declaration of cancellation producing full legal effects. The non-performance
of the contract must therefore be of some importance before it is made to result in the cancellation.
ii) Unilateral party cancellation –there are certain obvious breaches of a contractual obligation that do
not need ascertainment of the case by a court. In such cases, the party himself should be able to cancel the
contract. The law has expressly stipulated these cases, as they are exceptions after all. They include
cancellation because of Essential date of performance, Expiry of time limit, Anticipatory breach and
Impossibility of performance.
3. Damages: - Damages may be due whether or not the other remedies are claimed. Thus, damages may
be awarded even along with a claim for specific performance.
A). Nature of Contractual Damages: - Contractual damages are characterized by the absence of a fault
requirement. That means, the plaintiff is not expected to prove the fault of the defendant in order to obtain
damages and the defendant cannot exculpate him/herself by establishing his faultlessness.
 However, the defendant is entitled to assert the defense of force majeure. If non-performance is the result
of force majeure, the party will be released from the payment of compensation for the resulting damage.
Force majeure is a circumstance that is unforeseen and makes performance absolutely impossible.
Unforeseeability and absolute impossibility are cumulative preconditions for the existence of force
majeure, and the absence of one denies the failing party to claim the defense. The law makes an
illustrative list of cases of force majeure. It includes the enactment of a law that prohibits the
implementation of the contract; a natural catastrophe such as earthquakes, thunder and floods; on
outbreak of international or civil war; or the debtor’s death or unexpected serious accident or illness.
B). Extent of Damages:- The amount of damages that is payable for contractual non-performance is
equal to the normal damages that is expected to result from the non-performance. The court fixes, as a
rule, this amount having regard to all the circumstances surrounding the non-performance without the
need to ascertain the actual damage sustained by the creditor. The amount of this presumed normal
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damage may be less than or could exceed the actual damage. The court awards such an amount unless the
contrary is proved by the parties.
 The amount of the normal damages that is to be awarded by the court in the normal course of things may
be increased to the actual if it is less or reduced to the actual if it is proved to be higher. The party,
normally the creditor, can claim the increase of damages by proving that the damage he actually sustained
is greeter. Conversely, the other contracting party, normally the debtor, can seek the reduction of the
normal damages by establishing that the actual damage is far less. Generally, the court awards damages in
the amount normally presumed to occur, but this amount may be decreased or increased if it is proved by
the parties that the actual damages caused by the non-performance is less or greater than the normal
damages as the case may be.
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CHAPTER FOUR
LAW OF AGENCY
- Discovering the nature of a agency relationship;
- Identifying the sources of agency relationships;
- Noticing the effects of agency;
- Exploring the issues of special agency relationships;
4.1. General Remarks
 An agency relationship exists when one party, called the agent, agrees to represent or act for another
party, called the principal. The principal has the right to control the agent’s conduct in matters entrusted
to the agent. An agency may be engaged to accomplish a single task or to carry out several tasks.
 In a principal-agent relationship, a legal bond will be created between the parties so that the agent will act
on behalf and instead of the principal in negotiating and transacting business with third parties. An agent
becomes empowered to perform legal acts that are binding on the principal and can bind a principal in a
contract with a third person. For instance, if A is hired as a booking agent for a certain music band, A can
negotiate and sign a contract for the band to appear at concerts. The contract will be binding and thus
legally enforceable against the group.
4.2. Sources of Agency

The sources of agency under Ethiopian civil law are two: the law and contract.
 Agency by Operation of the Law: - The Ethiopian law also recognizes agency by the operation of the
law in certain circumstances.
 One instance where agency arising from the law operates is representation of persons with legal
incapacity.
 An agency also arises by law in cohabitation, i.e. it may occur in family relationships, as between
husband and wife. For example, suppose one spouse purchases certain basic necessities and charges them
to the other spouse's charge account. The law often regards the latter as liable for payment of the
necessaries, either because of a social policy of promoting the general welfare of the spouse or because of
a legal duty to supply necessaries to family members.
 Agency by operation of law may also occur in emergency situations. The law encourages the curbing of
an emergency by recognizing persons who have no agency authority to contract with others to act on the
behalf of other persons anyway due to the emergency.
 In some situations, a court may also out of its discretion appoint an agent, called the curator, to act on the
behalf of another. The court grants an authority of agency where a person cannot himself appoint an agent
for reason of being away or ill, and it must make the authorization in a manner that protects the interest of
the principal.
 Agency by Contract: - majority of agency relationships is created by the agreement between the agent
and the principal. The preliminary relationship is contractual in nature, and the parties to such contract
can define the scope of the authority of the agent and are free to determine the details of their
engagement. The two persons (the agent and the principal) will enter into agency relationships out of their
own free will and no one will force to have such kind of relations.
4.3. Contractual Agency in Ethiopian Law
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 Definition and Formation: - Agency is defined, under Article 2199 of the Civil Code, as a contract
whereby a person, the agent, agrees with another person, the principal, to represent him and to perform on
his behalf one or several legally binding acts. Agency in this sense is special type of contract to which the
fundamental rules of contract law should apply. The essential requirements for the formation of any
contract need to be observed in the conclusion of a contract of agency too.
 The contract of agency, just like many other contracts, can be formed either expressly or implicitly. The
express manifestations of agency could be written or verbal communications. The implied mechanisms of
creating agency contracts are usually signs and conduct. In conclusion, a contract of agency may emerge
in whatever way in so far as there is no doubt as to the formation of the contract by custom, equity or
other prevailing value.
 Scope and Types of Authority: - The two ways of agency authorization are general and special agency.
 General agency: - this is the case where the power of agency is fixed in general terms, without detailed
authorization. This may pose a problem as to what powers should the agent exercise. The law states that
agency expressed in general terms only confers upon the agent authority to perform acts of management.
 Acts of management are merely administrative or maintenance functions that aim to continue the
previous economic status quo of the principal. A person with authorization in general agency terms
discharges only preservatory functions and is empowered only to sustain the rights of the principal; he is
not authorized to exercise acts of disposing of the rights of the principal. Hence, such agent does not have
a power to affect the economic position of a principal.
 The law enumerates, in article 2204 of the Civil Code, acts of management as comprising the collection
of debts, the discharge of debts, investment of income, leases for terms not exceeding three years, and any
other acts done for the preservation or maintenance of property. There is also a category of functions
exercised by the agent regarded by the law to fall in acts of management. These are the sale of crops, the
sale of goods intended to be sold, and the sale of perishable commodities.
 Special agency: - confers on the agent authority only to conduct the affairs specified by the contract of
agency, and of course their natural consequences attached to the specifically enumerated acts by usage or
custom (Art 2206(1)). The fact that acts of disposition presuppose express stipulation does not mean that
the unstated but intrinsically associated activities therewith are excluded. The law rightly includes the
inevitable incidental functions that are not even necessary to be specified in the scope of authority of a
special agent.
 Article 2205(1) of the Civil Code makes an illustrative list of activities that require special authorization
for their discharge. These include alienation or mortgage of real estate, investment of capital, signing of
bills of exchange, effecting settlement and consenting to arbitration, making donations, and bringing or
defending lawsuits. For example, the sale or the setting for mortgage (such as to borrow huge money) of
an immovable property seriously affects the proprietary interests of the principal.
4.4. Effects of Agency

 Agency undertakings will produce various distinct legal effects.
 Liability Relationships: - the way the agent deals with the third parties might be through disclosing his
real identity or without disclosing his real identity.
 In disclosed agency relationship, a direct legal bond is created between the principal and third parties.
The agent functioning under such a circumstance merely facilitates the transactions and does not
personally enjoy rights or bear duties arising from the transaction he has undertaken with third parties.
The agent is not answerable for the performance of the contract he has concluded with third parties, and it
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is the principal and third party that are legally obliged to one another for the performance of the
obligation.
 In an undisclosed agency scenario, the agent is deemed to have acted on his own behalf and legal bond in
this case is created between the third party and the agent. The agent is authorized to represent the
principal, but third parties do not know the fact that he is an agent. So, the law recognizes a liability
relationship between the agent and third party. However, the internal liability relationship the agent has
with the principal remains intact. Thus, the agent recovers duties he has personally borne to third parties
through his rights from the principal.
 Where the agent performs some acts in excess of its power, the principal has the option of repudiation.
Repudiation refers to the principal power to reject or disapprove acts that the agent performs in excess of
its authority, and this has the effect of making the agent bear the whole liability towards the third party.
Duties of the Parties to the contract of Agency: - There are some respective rights and duties as
between the principal and the agent. Rights and duties are correlates, and there cannot exist a right
without a corresponding duty. Thus, rights of the principal carry duties of the agent and rights of the agent
carry duties of the principal.
1. Duties of the Agent: - Duties of the agent arise from the contractual stipulation made by the parties
and from the law’s role to fill the gaps created by the contract. This are: -
a) Duty of notification: - It is a maxim in agency law that all that the agent knows, the principal knows.
Thus, it is only logical that the agent be required to notify the principal of all matters that come to his
attention concerning the subject matter of the agency.
b) Duty of Loyalty: - This is known in Ethiopian law as the duty to undertake authorization with utmost
good faith. The requirement of good faith is refers to the agent’s exercise of authority in the exclusive
interest of the principal. In short, the agent’s loyalty must be undivided. The agent’s actions must be
strictly for the benefit of the principal and must not result in any secret profit for the agent.
c) Duty of obedience and Diligence: - When an agent is acting on behalf of the principal, a duty is
imposed on that agent to follow all lawful and clearly stated instructions dictated by the principal. Any
deviation from such instructions is a violation of the duty of obedience. Diligence refers to the care and
skill expected from the agent. The agent must show a good deal of care and skill in executing his agency
functions. The standard of diligence required here is that the agent must show no less care and skill
towards the affairs of the principal than he does to his own interests/affairs.
d) Duty of Accounting: - Unless an agent and a principal agree otherwise, the agent has the duty to keep
and make available to the principal an account of all property and money received and paid out on behalf
of the principal.
e) Duty of Non-delegation:- The personal nature of agency relationship is all about placing personal trust
and confidence in somebody the principal appoints as an agent. This very trust will be violated when the
agent delegates his authority to someone else the principal did not consent to. The principal authorizes an
agent so that the latter discharges functions personally. This accords with the maxim “a delegate cannot
delegate”, meaning the agent himself is a delegate and cannot further delegate authority to another. But,
the principal may authorize the agent to appoint a sub-agent.
2. Duties of the Principal
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a) Remuneration: - This duty is about the payment made to the agent for his services. But remuneration
is not a requisite; the law even says that agency services are gratuitously made unless remuneration is
expressly agreed upon by the parties. The duty of remuneration thus comes into the scene under Ethiopian
law where the parties expressly stipulate in their contract.
b) Duty to Advance Money: - The agent perhaps needs money to run the representation of the principal.
Thus, the principal shall advance to the agent the sums necessary for carrying out the agency.
c) Duty of reimbursement:- Whenever an agent disburses sums of money at the request of the principal,
and whenever the agent disburses sums of money to pay for necessary expenses in the course of a
reasonable performance of his agency duties, the principal has a duty to reimburse the agent for those
payments. However, agents cannot recover for expenses incurred by their own misconduct or negligence.
d) Duty of Indemnification and Compensation: - Subject to the terms of the agency agreement, the
principal has the duty to indemnify an agent for liabilities incurred because of authorized and lawful acts
and transactions. The principal shall also compensate for any non-contractual damages sustained by the
agent in the course of performing his agency duties.
4.5. Special Agency Relationships

 Commission Agency: - Commission agency is a professional agency service that is undertaken for the
payment usually known as a commission. It is an agency widely accepted and practiced in the world of
commerce, and for particular affairs. For example, commission to buy or sell and forwarding agent.
 Unauthorized Agency: - Unauthorized agency occurs in necessity situations where unexpected situations
affecting the economic interest of a person happen. It is the emergency cases that justify such kind of
agency. Under this case, the representing person has no contractual authority to act on the behalf of the
represented person, but he is legally authorized to do so because the economic interest of the principal
(who is not in a position to take care of his business) is under a risk. Unauthorized agency is fully
recognized by the law only if there is no means of securing authorization from the principal.
4.6. Termination of Agency Relationship
Agency is not a relationship of eternity. It can be terminated in two ways: -termination by operation of the
law and by the actions of the parties.
 1. Termination by Law: - Where there is no agreement to the contrary, the death, declaration of absence,
incapacity or bankruptcy of either of the parties will result in the extinguishment of the legal bond.
 2. Termination by the Parties: the parties can terminate their relationships at any time they want by
mutual agreement. But unlike other kind of contracts, the principal can any time terminate the agency by
his own discretion, without facing any claim of damage from the agent. The power of the principal to
unilaterally put an end to the authority he has given to the agent is called revocation.
 In similar fashion, the agent can also terminate the agency. Thus, the law does not require the agent to
maintain the relationship until the expiry of the agency term. This is called renunciation. The agent can
renounce his authority. But the exception here is that the agent bears the duty to indemnify the principal
where the renunciation is detrimental to the principal.
CHAPTER FIVE
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LAW OF SALES CONTRACT

- appreciated the basic elements in sale contracts;
- grasped the effect of sale contract;
- identified the identity of a ‘thing’ that is subject-matter for sale;
- explored the concepts of transfer of possession, ownership, and risk;
- gathered rights and duties of parties to sale contract; and
5.1. Introduction to Sales Contract and Its Formation
5.1.1. Meaning and Essential Elements
 Sale is an exchange mechanism that has the purpose of passing title from the seller to the buyer for a
price. Sale is a contract and the Civil Code (Art 2266) defines a contract of sale as a contract whereby
one of the parties, the seller, undertakes to deliver a thing and transfer its ownership to another party, the
buyer, in consideration of a price expressed in money which the buyer undertakes to pay him.
 Taking in to consideration of the above definition of sale contract, one needs to distinguish a sale contract
from other similar types of exchange modes. Such contract as supplies, barter, donation and contract of
service should not be confused with sale. There is a difference between sale proper and this other types of
exchange transactions.
 There are also certain “forms of sale” recognized by law. They are all forms of sale, but assume different
modes. These include sale on trial, sale by sample, sale with ownership reserved, and sale with the right
of redemption.
 Sale by sample refers to the situation where a particular thing is agreed upon to be sold so that it will also
be used to conclude a sale contract in respect of the other category it represents. The sample or pattern
will operate to represent the sale of others. Thus, sale is concluded in respect of the whole thing when the
sample conforms to the description in the contract.
 Sale on trial on the other hand is a conditional sale which completes only after the thing is taken by the
prospective buyer and tried to be suitable. If the thing passes the trial, the sale contract becomes intact.
Until the trial is made, ownership resides in the prospective seller and so risk remains with him.
 Sale with ownership reserved is a contract whereby the seller reserves to himself the ownership until the
buyer pays the price of the thing he has taken possession. A sale that transfers ownership in full is created
when the buyer fully pays the price.
 Sale with right of redemption refers to the right of the seller to buy back the thing. Parties can reach
agreement so much so that the seller can re-buy the thing he has sold within a defined period of time,
usually two years, subject of course to the refund of the appropriate amount of price to the buyer.
5.1.2. Formation of a Sale Contract
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 Those essential requisites necessary for validity of contracts stated under Art.1678 of the Civil Code will
be also applied for sale contracts. Consent of parties, capacity, object and form should always be observed
when concluding a sale contract.
 The “thing” upon which a sale contract is concluded needs to be the property of the seller. As one cannot
transfer what he does not have, a person cannot sell a thing that does not belong to him. Exceptionally,
however, it is possible to sell a thing belonging to a third party, as when as agent is given a special
authority to transact sale of things belonging to the principal.
5.2. Performance and Obligations of Parties to Sale Contract
 The normal effect of every contract is performance. Sale contract is no exception on this regard.
Performance is realized through the imposition of certain obligations on both the seller and the buyer. The
parties to the contract of sale have their own respective obligations to discharge.
5.2.1. Obligations of the Seller
 The obligations of the seller are those imposed by the contract and the mandatory provisions of the law.
The most noticeable obligations of the seller in a typical sale transaction are delivery, transferring
ownership, providing warranties, and other incidental duties.
 A. Obligation to Deliver the Thing : - Delivery consists in the factual handing over of the thing to the
future owner. Delivery effectively transfers possession in most cases. The delivery that transfers
possession over the thing can be made in three ways: - actual delivery, constructive possession and
handing over of the documents. Actual delivery of the thing itself – the thing is physically handed over to
the buyer. Constructive possession is a situation where the buyer after agreeing to take delivery lets the
seller to hold the thing in order to take it at some later time. Handing over of the documents representing
the thing is the case where the title deed of the thing is handed over to the buyer.
 The determination of the quantity of the thing to be delivered is usually made by the parties in their
contract. That quantity is to be complied with, and no delivery is deemed to be valid where it deviates
from the quantity stipulated in the contract.
 As to the time of delivery a clearly stipulated time of delivery in the contract is given effect. But the date
of delivery may not be inferred from the will of the parties. In this case, the law requires the seller to
deliver the thing as soon as the buyer requires him to do so. Regarding the place of delivery, the principle
is that the place of delivery is fixed in the contract. Failing this, delivery is to be made at the place where
the seller had his place of business at the time of the contract or, in the absence of such, his normal
residence.
 Unless provided contractually to the contrary, delivery of the thing is legally made in simultaneity with
payment of the price so much so that the seller is not obliged to deliver the thing until payment it made.
 B. Obligation to Transfer Ownership : -This obligation is evident as sale is a mechanism for the transfer
of ownership and ownership is not guaranteed by simple delivery. It is a rule of legal significance that the
seller shall take all the necessary steps for transferring to the buyer unassailable rights over the thing (Art
2287). The proprietary rights of the buyer may be affected because of third parties’ rights over that thing
at the time the sale contract is concluded. The seller is obliged to warrant the buyer any such
dispossession which he might suffer in consequence of third parties right over a thing.
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 Warranty against Defects and Non-conformity : - A sale contract carries with it a warranty both against
defects and non-conformity to the contract. The seller shall guarantee to the buyer that the thing sold
conforms to the contract and is not affected by defects (Art.2287).
 Defects relate to the quality of the thing, and involve the following cases:
- quality unsuitable for normal use or commercial exploitation;
- quality unsuitable for particular use expressly or impliedly provided in the contract;
- deviance from the quality or specification provided expressly or impliedly in the contract.
 Defects could be of two types: obvious (patent) and non-obvious (latent). Obvious defects are those
defects that can be noticed too easily. Non-obvious defects are those that are hidden so that they are
discovered through later examination by customary usage or expert inspection. The rule of warranty is
that for obvious defects let the buyers beware and for non-obvious defects let the seller beware.
 The buyer will avail himself of warranty for defects only upon compliance of procedural requirements of
examination and notification.
 Non-conformity shows a discrepancy between the thing as described in the contract and the delivered
thing in terms of quantity, type, color or other similar characteristics.
5.2.2. Obligations of the Buyer
 The obligations of the buyer are paying the price (the main obligation), taking delivery of the thing, and
other obligation contractually imposed upon him.
 A. Obligation to Pay the Price: - obligation is usually discharged quite easily by a cash payment. Art
2304(1) of the Civil Code reads “the obligation to pay the price shall include the obligation to take any
step provided by the contract or by custom to arrange for or guarantee the payment of price”. In a sense,
the buyer must arrange the actual payment of price and so undertake all the relevant formalities to transfer
the money through orders to the bank.
 The place of payment is in principle fixed in the contract. Where the contract is silent payment is made at
the address of the seller which implicitly means his business address. In cases of simultaneity, price is
paid at a place where the thing is delivered. The time of payment is the one stipulated in the contract. In
the absence of a contractual provision, the principle is sale for cash on delivery. Payment is simultaneous
with delivery, but the buyer should be granted the opportunity to examine the thing for defects or non-
conformities so as to avoid future dispute.
 B. Duty to Take Delivery: - Where delivery is made by the seller, the buyer should take it. The buyer has
a duty to cooperate in the delivery process and he may not obstruct the sale by blocking the delivery.
5.2.3. Common Obligations of the Parties
 Transfer of risk, expenses, and preservation of the thing may be borne by either of the parties depending
on differences in time, nature and other attending circumstances.
 A. Transfer of Risks: - it is a circumstance that determines on whom certain consequential obligations
should fall. The accepted principle as far as transfer of risk is concerned is the doctrine of risk follows
title. Stated differently, the transfer of ownership (title) is accompanied by the transfer of risk. The sale of
ordinary movable things transfers ownership thereof merely through factual delivery because these goods
are those susceptible to the application of the property law presumption “one who is in possession is
deemed to be the owner”.
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 Risk involves the destroying, perishing, wearing and deterioration of a thing that is subject matter of the
sale transaction. Where the risks are transferred to the buyer, through delivery made in accordance with
the provisions of the contract and of the law, he is obliged to pay the price notwithstanding that the thing
is lost or altered in value (Art.2323 & 2324). On the other hand, the risk remains with the seller in so far
delivery is not made appropriately and risk is not transferred.
 The idea here is that the risk of the voyage(on course of transport) is for the buyer because the transfer of
risks happens on the day the thing leaves the hands of the seller, and it is immaterial that the thing is
handed over to the buyer. But the law prohibits the seller from abusing his position by giving a damaged
thing and pretending the damage happened during the voyage.
 B. Expenses: - A sale transaction could entail various expenses. The noticeable expenses are coast of
forming the contract, delivery, transport, payment, and custom duties.
 The law provides that the expenses of delivery (that includes counting, measuring and weighing costs),
transport (where delivery is carriage-free), and customs duties are all borne by the seller. The buyer on his
part bears the expenses of the contract of sale itself, expenses for payment, expenses after delivery and
expenses of transport where thing is sent to other place than that of delivery.
 C. Preservation of the Thing: - The duty of preservation of the thing arises where the buyer fails to take
delivery of the thing on the one hand, and the seller makes a defective delivery refused by the buyer on
the other. Where the buyer is late in taking delivery or in paying the price, the seller bears the duty to
preserve the thing at the buyer’s expense. Where the thing sold has been received by the buyer but he
intends, legitimately, to refuse it, he is obliged to ensure its preservation at the seller’s expense. Finally,
the seller and the buyer can relieve themselves of the duty of preservation by consigning or selling the
thing in accordance with general contract principles.
5.3. Non-performance of a Sale Contract

As sale is a special type of contract, and therefore the general rules of contracts will apply, mutates
mutandis (as a condition). These are forced performance, cancellation and damages, if any.
 1. Forced/Specific Performance: - Specific performance is awarded only if it is of a special interest to

the creditor and if it can be carried out without affecting the personal liberty of the debtor. By the same
token, a seller cannot claim the forced payment of a price from the defaulting buyer if he can sell his thing
at equivalent price to someone else.
 2. Cancellation: - Where ever non-performance happens, as a rule, parties have to seek cancellation of
the contract from a judicial body. All the same, they can unilaterally declare cancellation in exceptional
circumstances. So, cancellation can be ordered by the courts judicial or unilaterally by the parties.
 3. Damages as a Remedy for Non-performance: - The non-performance by one contracting party might
be economically detrimental to the other contractant, and the seller or the buyer, whoever the victim of
the non performance may claim that the damages thus caused be made good by way of compensation.
Compensation is claimed whether the contract is cancelled or maintained. It is also due where the contract
has not been regularly and exactly performed.
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CHAPTER SIX
INTRODUCTION TO COMMERCIAL LAW
- distinguish traders from non-traders

- differentiate the business organizations that can be formed in Ethiopia,
- define insurance and insurable interest
- describe negotiable instrument and negotiability
- identify the different types of negotiable instruments and their resenting features
6.1. Law of Traders and Business Organizations
 Traders: - Who are traders? Traders are persons who carry on trading activities professionally and for
gain. Obviously, traders pursue profit-making ends. The law has expressly stated in a seemingly limitative
list, the activities that are regarded as trading. Article 5 of the Ethiopian Commercial Code contains
twenty-one activities in which traders can engage in. Thus, not all persons who operate a given task for
profit may be necessarily regarded as traders. For example, persons who engage in agricultural
production, cattle breading, fishery and persons who operate activities at the level of handcrafts are not
treated as traders even if they derive profits out of their activities, and they don’t have the rights and
duties of traders.
 There are some persons who from the outset cannot engage in trading activities or at least engage subject
to fulfillment of certain conditions, not because the activities they engage in are non-trading. Incapable
persons, foreigners, civil associations, among others, are group of persons who cannot engage in
commercial activities. A trader can be both a physical person and a juridical person. Both human beings
and corporate entities are regarded as traders when they take part in the activities regarded by the law as
trading ones.
 Traders have certain obligations not borne by non-trading persons. They are generally required to be
registered, to obtain business license and to keep books and accounts.
 Law of Business Organizations: - Among the two basic forms of doing business, i.e. individually or
through a corporate body, the latter form can be split into various sub-forms.
 Business organization is defined under the Commercial Code (art. 210) as an association arising out of a
partnership agreement. A business organization is, therefore, a grouping of business persons that comes
out of the partnership agreement. Partnership agreement is defined as a contract whereby 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).
 The Ethiopian law recognizes six types of business organizations: three types of partnerships, two types
of companies and a joint venture.
 1. Partnerships are associations of persons and the personality of members does greatly matter.
Partnerships will have their own legal personality upon registration and publicity. But such personality is
greatly dependent on the mutual understanding between the partners so much so that the withdrawal of
one partner may cause the dissolution of the partnership as a whole. There are three types of partnerships:
ordinary, general and limited partnerships.
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 2. Companies: - Companies are associations of capital and the personality traits of shareholders are not
important to the existence of the company. It is characterized by an acquisition of capital from a relatively
wider segment of the society. What is needed is capital and not persons, and thus members are not
expected to take part in the operations of the company. Ownership belongs to dispersed shareholders
while management and control is in the hands of professional managers. The basic virtue of the company
form is the full recognition of limited liability.
 There are two types of companies: share companies and private limited companies. Both have their
partnership agreement expressed in what are termed as memorandum of association and articles of
association. They also have their capital divided into shares, and they issue shares, even though shares of
a very different nature. They are always commercial business organizations in the sense that they engage
only in one of the activities legally recognized trading ones (art. 5 of the commercial code`).
 3. Joint Ventures: - Joint ventures are unique forms of business organization. Joint ventures in
investment law refer to the collaboration between two persons (usually where the government is a party)
who are already engaged in another business. Under the Ethiopian Commercial Code, a joint venture is a
secret business organization. The existence of a joint venture cannot be disclosed to third parties. The
organization is known only to the venturers. The agreement forming a joint venture need not be made in
writing. Third parties only know the manager of the joint venture. The manager is responsible for all
faults and liabilities that may emerge because of the business. The powers of the manger and liability of
other partners will be determined in their internal mutual agreement.
6.2. Law of Insurance
 Insurance is a social security scheme that developed because of the existence of risks. The uncertainty
surrounding potential losses is referred to as risk. Risks are evident especially in the business world where
persons may be exposed to huge losses as a result of the materialization of the risk. Insurance policy was
created in responding to the abovementioned problem.
 Insurable Interest: - Any party purchasing insurance must have a “sufficient interest” in the insured item
to obtain a valid policy. Insurance laws determine sufficiency of items for insurance coverage. A person
is said to have insurable interest where he has a vested economic interest in the subject matter of
insurance. Insurance protects the relation or economic concern on a thing. The insured should be
benefited from the existence of a thing or should be prejudiced by its destruction upon materialization of
the risk.
 Insurance Policy and Rights and Duties of Parties: - Insurance policy is basically a special kind of
contract. It is a contract whereby a person called the insurer, undertakes against payment of one or more
premiums to pay to a person, called the beneficiary (insured), a sum of money where a specified risk
materializes (Art. 654(1) of com code). As a contract, an insurance policy should satisfy all essential
requirements of a valid contract.
 A contract of insurance must be made in writing (art. 6579(1)). This is so because the law says that the
contract should be supported by a written document called an insurance policy. The insurance policy also
is to contain the facts stated in Article 658. These are: the place and date of the contract; the names and
addresses of the parties; the items, liability or person insured; the nature of the risks insured; the amount
of the guarantee; the amount of the premium; and the term for which the contract is made.
 In insurance contracts, the person guaranteeing against a given risk is called the insurer. In Ethiopia, only
share companies can be insurers because financial activities, such as banking and insurance, are run only
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in the form of share companies. The person seeking an assurance against a definite risk is the insured, or
the beneficiary. The insured may subscribe insurance policy for his own benefit or for the benefit of other
person(s), i.e. the beneficiary of the policy may be the insured or a third party. The subject matter of an
insurance policy might be a property or persons.
 The insurance policy contains certain basic rights and obligations from which parties cannot even
contractually derogate. Both the insurer and the insured do bear some duties to one another. The insurer
guarantees the insured against the risks specified in the policy, and he must pay the agreed amount within
the time specified in the policy (called indemnification). However, the insurer is exempted from the duty
if the losses or damages covered by the policy are caused by the negligent or intentional fault of the
insured himself.
 The main duties of the insured under an insurance policy are the payment of a fixed sum of money called
premium and the disclosure of material facts.
6.3. Law of Negotiable Instruments

 The word ‘negotiable’ means ‘transferable by delivery’, and the word, ‘instrument’ means ‘a written
document by which a right is created in favor of some person’. Therefore, the term ‘negotiable
instrument’ literally means ‘a written document transferable by delivery’.
 A negotiable instrument is any document incorporating a right to an entitlement in such a manner that it
be not possible to enforce or to transfer a right separately from the instrument (Art.715 (1), Com Code). A
negotiable instrument is a special but simple document that gives the possessor a right to the entitlement
as expressed in the instrument by the presentment of the instrument to the debtor. The right cannot be
claimed without the delivery of the instrument. The instrument is said to be negotiable because it can be
transferred from one person to the other by mere delivery or, sometimes, by endorsement.
 Negotiable instruments in general have the following four basic characteristics:-
1. Inseparability of the instrument and the right it embodies. The right can neither be enforced nor
transferred without the instrument
2. The instrument and the right which it embodies are capable of being transferred by delivery, either
with or without endorsement according as to whether the instrument is in favor of order or bearer.
3. The person to whom the instrument is negotiated or transferred can sue on it in his/her own name.
4. The person to whom a regular negotiable instrument has been negotiated, who takes in good faith and
for value, obtains a good title to it, even though his transferor had no title at all.
 The Ethiopian law recognizes three categories of negotiable instruments: commercial instruments,
transferable securities, and documents of title to goods. Transferable securities are mechanisms of
holding and negotiating certain types of rights and such include shares and debentures. Documents of
title to goods represent right over goods that are on shipment. A bill of lading, a truck way bill and an
airway bill are the examples.
 Commercial instruments are documents that embody an entitlement to a specific sum of money.
Commercial paper is any written promise or order to pay a sum of money. Bills of exchange (drafts),
promissory notes and cheques are typical examples. Commercial instruments function in two ways – as a
substitute for money and as a credit device. For an instrument to operate practically as either a substitute
for money, credit device, or both, it is essential that the paper be easily transferable without danger of
being uncollectible.
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 The Ethiopian Commercial Code specifies four types of commercial instruments: bills of exchange
(drafts), cheques, promissory notes and traveler’s cheques. These instruments are frequently divided
into two: orders to pay (drafts and cheques) and promises to pay (promissory notes).
 The requirements for negotiability of these instruments are: be in writing, signed by the maker or the
drawer, be an unconditional promise or order to pay, state a fixed sum of money, and be payable at sight
(on demand) or at a fixed date. They are payable to order or to bearer, unless it is a cheque which is
always to order.
 A draft (bill of exchange) is an unconditional written order that involves three parties. The party creating
it, the drawer, orders another party, the drawee, to pay money usually to a third party, the payee. The
drawee must be obligated to the drawer either by agreement or through a debtor-creditor relationship to
honor the order.
 A cheque is simply a bill of exchange drawn on a banker. In the case of cheque, the drawee is a banker. It
is also an instrument to order.
 The promissory note is a written promise between two parties. One party is the maker of the promise to
pay and the other is the payee, or the one to whom the promise is made. A promissory note can be made
payable at a definite time or on demand. It can name a specific payee or merely be payable to bearer.
 All the above instruments might also have different natures based on the form of transfer. They may be to
specified name, to bearer or to order documents. Instrument which is payable to bearer may be
transferred by delivery alone; the bearer simply hands to another party. The holder of an instrument in a
specified name establishes his right, upon delivery, to the entitlement as expressed in the instrument by
his designation as beneficiary therein and in the register held by the person issuing the said instrument.
Instruments to order may be transferred by endorsement and delivery of the instrument to the beneficiary
under the transfer.
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Business Law of Ethiopia Lecture Notes

Business Law (Addis Ababa University)

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1.1. Meaning of Law and Schools of Jurisprudential Thought

 The Natural Law School (theory)

 The Positivists (Imperatives) School of thought

 Realists School of thought (Legal Realism)

 Marxist Theory of law (Marxist legal thinking)

1. The Natural Law School: -

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2. The Positivist School

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4. The Marxist Legal Thinking

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1.2. Basic Features of Law

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iii) Establishment in Permanence

iv) Intimacy with Human Behavior and State

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1.4. The Functions of Law

Generally, currently, the following are considered as the function of law:-

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1. Public versus Private Law

2. Substantive and Procedural Law

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3. Civil versus Criminal Law

1.6. Out-of-Court Dispute Settlement and its Virtues in Business

Business-persons prefer out-of-court settlement mechanism because of certain virtues.

 First, court settlement is conducted in an extremely formalistic manner and is surrounded by

1.6.1. Negotiation, Conciliation and Mediation

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2.1. The Concept of Personality and its Effect

 Personality is a fundamental concept in law because no dealings of legal significance would

 Personality will be granted for two categories of beings:-

I. Physical or natural personality: - it is a kind of personality which is possessed by every human

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2. 2. Beginning and Termination of Artificial Personality

2.3. Attributes of Legal Personality

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2.4. Commencement of Physical or Natural Personality

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Besides the interest of the child, there remain two conditions: -

2.5. Capacity and Incapacity of Physical Persons

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2.6. Termination of Physical Personality

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3.1. Some Remarks on Obligations

3.2. Essential Notions of Contracts

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D) The object of contracts is the establishment and performance of an obligati on – an obligation is a

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3.3 Formation of a Contract

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 Consent is a defect-free mutual agreement by the contracting parties. It is a manifestation of freedom of

Offer and Acceptance

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 Acceptance must be communicated, and, conversely, non communicated acceptance is no acceptance.