Business Law PPt_UpdatedDecember 2024.pptx

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1. A Lecture Note on Business Law December, 2024 AMBO UNIVERSITY SCHOOL OF LAW 1 December, 2024 December 2024

2. CONTENTS December, 2024 2 CHAPTER ONE: THE GENERAL INTRODUCTION TO LAW AND THE CONCEPT OF PERSONALITY CHAPTER TWO: GENERAL CONTRACTS CHAPTER THREE:LAW OF SALES CHAPTER FOUR: LAW OF AGENCY CHAPTER FIVE: LAW OF TRADERS AND BUSINESS ORGANIZATIONS December 2024

3. CHAPTER ONE : THE GENERAL INTRODUCTION TO LAW AND THE CONCEPT OF PERSONALITY The meaning of the concept of law: Defining the term law is one of the controversial points to the legal scholars. That means, legal scholars vary in their definition of what law means and hence we can’t see a universally accepted definition of law. Definition of law is as many as legal theories. Like any other social studies laws can also be studied systematically. The systematic study of law is known as Jurisprudence . The word comes from two latin terms : juris & prudentia which means the study, knowledge or science of law . Black’s law dictionary: law is defined as a body of rules of action or conduct prescribed by controlling authority and having binding legal force. By way of summary , law is a set of normative rules and principles made by a competent organ of the state and of a binding nature. 3 December 2024

4. Business Law: branch of law which comprises laws concerning trade, industry and commerce. Hence, Business law is a collection of different rules and principles governing the conducts and relationships of persons (traders & business organizations) as affecting their economic and commercial activities. It is generally understood to include laws relating to persons, contracts, sales, agency, partnerships and companies, insurance, negotiable instruments , insolvency/ bankruptcy etc . Basic features of Law: Generality, Normativity, sanction A . Generality : Law is the general rule of human conduct. Its generality is both in terms of individuals governed & social behavior controlled. The extent of its generality depends on whom the law is made to be applicable. Eg1. “Every person has the right to life, liberty, & security of person. (art.3 of UDHR)== this law is made to be applicable to every person on this world. Eg2. “Every person has inviolable and inalienable right to life, liberty, & security of person.” (art.14 of FDRE constn .) ==this provision is made to be applicable to every person in Ethiopia. Eg3. “The term of office of the president shall be six years.(art.70(4) const )==this law applies only to a person who becomes president in Ethiopia. 4 December, 2024 December 2024

5. B. Normativity : law is made with the intention to create some norms in the society by allowing, ordering or prohibiting the social behavior. Based on this feature, law can be classified in to 3. a . Permissive law : allows or permits the subjects to do the act provided. It gives right or option whether to act or not to act. It uses phrases like has/have the right to, is/are permitted to, May, is free to etc b . Directive law: orders or commands the subject to do the act provided in the law. It is not optional. Thus, the subject has legal duty to obey it whether he/she likes it or not. Phrases used are: must , shall, is or are obliged to, is/are ordered to , etc. c . Prohibitive Laws: Discourage the subjects from doing the act required not to be done. Phrases used are: may not, shall not, no one shall, is a crime, is punishable etc. NB: All criminal code provisions are prohibitive laws . C. Sanction : E ach and every member of the society is required to follow the law. Where there is a violation of law, sanction would follow. Sanction can be defined as a penalty or coercive measure that results from failure to comply the law. 5 December, 2024 December 2024

6. Functions of Law In the modern organized and interactive community, Law is required to achieve various objectives. The ultimate end of law will and should be to attain justice in its various versions as social, economic, political spheres etc. However, when we come to specific purposes of the law, the following are some of the functional reasons for the existence of law:- I. Maintaining peace, order and stability – It is generally recognized that legal rules serve to ensure peaceful, orderly and stable existence of the state and its inhabitants. This ultimately guarantees the protection of citizen’s core right- the right to life, the right to liberty and the right to property. II. Regulating social behavior (social control) – legal rules serve as means of controlling social behavior by forbidding or commanding the doing of certain acts. Fear of penalties will avoid or mitigate unwanted or unapproved behaviors of persons. III. Means of dispute resolution – In the face of multiple interests of persons, dispute is inevitable. Such disputes are usually settled either judicially or extra judicially by applying the law. IV. Protecting citizens from excessive and abuse of government powers – law can serve as a check to the governmental power not to violate the right of its citizens. To this end, constitutional and administrative law can be best examples. Constitutions in most countries set out basic rights and freedoms of citizens and put limitations on government powers. Example, rule of law, due process of law, accountability, etc V. Social change (Promoting developmental activities) – legal rules can serve as important mechanisms for the growth and change of a nation state and its citizens. Conducive environments and new technologies can be created and introduced through the enactment of laws. Examples – investment law, patent and transfer of technology law, tax law /VAT/, etc 6 December, 2024 December 2024

7. Classification of Laws For the sake of simple understanding and easy accessibility, laws are classified into various categories:- Public law Vs. private law Substantive law Vs. procedural law Criminal law Vs. civil law Domestic law vs. international law, etc. Public law Vs. Private law – The basis of classification is mainly the relationship regulated or the subject matter governed. Public law , as its name indicates, principally governs the relationship between public organs /government/ and its subjects. It defines the respective rights and powers of citizens and governments and also regulates their possible relationships. For example, constitutional law is one which establishes state organs and defines their powers and functions. It also guarantees fundamental rights and freedoms of peoples. Other examples of public laws are administrative law, criminal law, financial /tax/ law, etc . … 7 December, 2024 December 2024

8. Cont’d Private law includes the whole branch of civil laws, which governs the relations between private persons /individuals/. It is all about the regulation of private conducts and resolution of private affairs. This category includes such laws as law of persons, family law, succession law, property law, contract law, business law, etc. Substantive law Vs. Procedural law – The basis of classification is mainly on the content /substance/ of the law . Substantive law sets out the rights and duties governing people as they act in society. It defines what rights, privileges and liabilities a person and government itself has. This category forms a greater portion of both public and private laws as constitutional law, criminal law, contract law, family law, extra contractual liability law, etc Procedural law , on the other hand, establishes the rules under which substantive rules of law are enforced. It is the means by which rights, privileges and duties are determined and enforced as how court cases are instituted, trial conducted, how judgment rendered and executed, etc. E.g. Civil procedure, criminal procedure Criminal law Vs. Civil law – This is essentially on the basis of the relations and affairs regulated. Criminal law is one of public law domain dealing with the breaches of legal duty to a society or else deals with crimes committed against an individual person, the public or the state. It sets out punishable offences and its corresponding penalties and measures. 8 December, 2024 December 2024

9. Cont’d Civil law , on the other hand, is the ordinary private law concerned with the rights and duties of individual person /s/ towards one another; here remedies are sought in private capacity even when the government is party to it . Domestic law (National law) vs. international law International law- It consists of rules which regulate relations between States. International law is classified into public international law and private international law. Public international law regulates the relation between states. For example the relations between Ethiopia and Sudan are governed by public international law. Private international law, on the other hand, governs the relations between individuals of different nationals. Different nationals involve in commercial and other civil transactions beyond their countries. Since the laws of different countries are not the same, the problem arises as to which law should be applied to the relations of different nationals. For example, let us assume that Ethiopian national and Chinese are married in Addis, and they live in Beijing. Let us further assume that a dispute arises between them with regard to the administration of their household. Whose law is to apply to solve their dispute: the Ethiopian or Chinese law? Private international law solves this problem. Private international law is known by different names. For instance it is called conflict of laws. 9 December, 2024 December 2024

10. Law of persons (The concept of personality) Only persons can enjoy rights the law spells out and subject to duties the law imposes. It is thus imperative to know about persons in order to talk about law and legal obligation. The Concept of legal personality In ordinary parlance, the term person(s) refers to individual human being(s). All human beings without any distinction are physical /natural persons. In the legal context however, the meaning of the term person is not restricted to refer only to natural persons. The law also personifies entities like organizations and associations and gives the status of person after all formation formalities like registration and publication are fulfilled. Physical /Natural persons Physical persons exclusively include human beings. All human beings are considered as persons under the law by the mere fact they are born human . The very article of the civil code (art.1) establishes this basic principle as; "human person is the subject of rights from its birth to death". Human beings are thus recognized as persons under the law to have rights from birth . Physical personality begins from birth and lasts until death . 10 December, 2024 December 2024

11. Cont’d…  Birth : Black’s law dictionary defines birth as “the act of being wholly brought to separate existence .” When is a child considered to have a separate existence ? “In this respect one tends to make a distinction between the complete extrusion of the child from his mother’s womb and the cutting of the umbilical cord. At any rate from that moment on, the child becomes a person in the legal sense of the word and, in the ultimate instance; birth will be established through medical evidence.” The other issue that needs to be addressed is whether the legal existence of a person begins as of birth without the requirement of viability, i.e. capability to live outside the womb, which according to article 4 is presumed if the child lives for 48 (forty-eight) hours after birth. 11 December, 2024 December 2024

12. Cont’d There are two contending interpretations. According to the first interpretation, the only condition for acquisition of personality is birth ; and the issue of viability arises by way of an exception only when the interest of the conceived child requires the tentative acquisition of personality under the mandatory conditions that the child be born ‘alive’ and ‘ viable ’, short of which the personality granted shall be annulled. The second line of interpretation contends that for a child to acquire personality s/he should in all cases be born alive and viable . Many lawyers support the first interpretation because they argue that we can’t resort to interpretation if the law is clear. Anticipated personality: Conception and viability- There are instances where the interest of a conceived child is put at stake if personality is attributed only after birth. A case in point is the inheritance right of a child whose father has died before he is born, as envisaged under Article 834 of the Civil Code. Similarly, the interest of a conceived child should be protected where a parent dies under circumstances that entitle children of a deceased to receive damages, life insurance or other payments. 12 December, 2024 December 2024

13. Cont’d ….. Article 2 is meant to solve such problems. It reads: A child merely conceived shall be considered born whenever his interest so demands provided that he is born alive and viable A child is deemed to have been conceived on the 300th day preceding its birth (Article 3). A conceived child may acquire personality while he is still in his mother’s womb provided that: His interest so requires, particularly where the interest of a conceived child requires that he be called for succession (Article 834), He is born alive , and, He is viable (i.e.- capable of living for at least forty-eight hours after birth (Arts. 4/1 and 4/2 ). Viability clearly includes the condition of being born alive . Yet, Article 2 distinctly states the requirements of being born alive and viable , most likely because in the case of a stillborn child, the condition of being born alive is not met; and in effect, the issue of viability doesn’t arise. If on the other hand, the child who had acquired personality during conception is stillborn, or is born alive but not viable, the personality that was conditionally acquired during its conception is of no effect. 13 December, 2024 December 2024

14. Viability is presumed where a child lives for 48 (Forty eight) hours after its birth (Article 4/1). Moreover, a child who dies within 48 hours after its birth “due to a cause other than a deficiency in (bodily) constitution” is presumed to be viable because s/he wouldn’t have died at that moment had it not been for the incidence that caused the child’s death .  Death : the cessation of life and all associated processes; end of an organism’s existence as an independent entity. Our law recognizes two kinds of death. A) Actual death: is natural death. B) Probable death of a person : Absenc e- also known as legal death . There are cases where the death of a person is not certain but probable in view of his disappearance for a long time without news about him. The uncertainty of his death or his being alive creates problems with regard to the execution of rights that depend on his death (such as the interest of heirs and legatees) or as regards the performance of obligations that are dependent on his being alive. Probability of death should be the ground for the judicial declaration of absence. To this end, art,154(1) of cc provides that, ‘where a person has disappeared and has given no news of himself for two years, any interested party may apply to the court to declare his absence . ’ 14 December, 2024 December 2024

15. Juridical Persons These types of persons are entities such as organizations, association's, partnerships, companies, corporations etc to which personality is conferred by the operation of the law. They are termed juridical or artificial persons, as their personality is not natural, unlike human beings, but mere creation of the law up on fulfillment of certain formality requirements such as registration and publication. Juridical persons are thus capable of holding rights and duties consistent with their nature. Some examples of artificial persons are: The state & its administrative organs (ministries, agencies, etc ) , Public enterprises (e.g. Tele, Ethiopian Airlines, Religious institutions, Business organizations, civil or humanitarian associations (e.g. NGOs, professional associations, companies etc ,) Attributes of legal personality: Attributes of personality are qualities or features of personality or preferably, it refers to what a person may do/ exercise as a result of having legal existence (personality). Animals, entities or things that have no legal existence cannot do or exercise these things. 15 December, 2024 December 2024

16. The attributes of personality includes the following things. Cont’d A) Capacity to sue & be sued – legal persons have the capacity to bring legal action demanding remedy or can be subjected to legal action demanding remedy against them. This is same for both human persons &artificial persons. B) Capacity to own property – Both natural and artificial persons can own property in their own name and administer it, which cannot be done by non-personified entities. Natural persons can own property of various Sorts like house, vehicles, ships, etc .Likewise artificial persons can own items of the above kind in their own name. C) Can perform act of legal nature _Persons can enter in to juridical acts that have legal effects like entering in to contracts, making donations, etc. D) Capacity to acquire rights & duties _We agreed that personality is about capacity to hold or enjoy rights & duties. The law confers rights and imposes duties only to and on the subjects of the law, i.e. persons. Non-persons have no rights & duties. Things or entities that don’t acquire personality have no capacity to hold rights & duties even if in certain cases the law gives protection to them. Therefore, only physical and artificial persons can acquire rights& duties consistent with their nature. 16 December, 2024 December 2024

17. Capacity of Persons Individual human beings need to have capacity in order to exercise their rights and duties . For instance, can a 5-year boy sale his car/bicycle? Capacity is the ability to exercise rights and duties. So it is the legal competence to do one or more legally binding acts. The law declares some categories of persons as incapable of fully exercising their rights and duties i.e. concluding various juridical acts . Juridical act: is ordinarily defined as an act that is intended to create, transfer or extinguish a right and that is effective in law for that purpose. It is a declaration of will by a private person directed to the creation of intended legal consequences. Incapacity is lack of ability or legal competence to exercise rights and duties under the law. The law classifies it into two major groups: - General incapacity and Special incapacity General incapacity is based on age (minority), mental condition and consequences of criminal sentences. Special incapacity is based on nationality, function . 17 December, 2024 December 2024

18. Cont’d A). Minority - is the incapacity that emanates from the young age. The law makes children below the full age of 18 years incapable. These people are termed as minors. The rational for making minors incapable is to protect them from harassment and problems from their own acts and the acts of others. Hence, minors cannot perform valid juridical acts unless expressly permitted by the law to do so. Therefore, any unauthorized act of minor is subject to invalidation. The Law thus provides for the institution of guardian and tutor. The guardian represents the minor in respect to his personal care (interest) such as upbringing, education, medication, marriage or any other act or contacts other than economic interest. Art.216 (1) of the RFC emphasizes this as- “A minor as regards the proper care of his person shall be placed under the authority of a guardian.” This institution protects personality interests of the minor as stated above . The tutor , on the other hand, represents the child in relation to economic or financial interests. Art 216(2) of the RFC starts- “ In matters concerning his pecuniary interests and the administration of his property, a minor shall be represented by his tutor.” Pecuniary interest here means economic or proprietary interest. 18 December, 2024 December 2024

19. Cont’d W ho may be a guardian or tutor? Parents are natural guardian and tutors of a child as there is no one closer to the causes of a child. If either of the parents die or become incapable, the other will be guardian & tutor. There may also be a testamentary guardian or tutor appointed by will of father/or mother. when there is no natural nor testamentary guardian/tutor, the court will appoint as guardian or tutor from the blood( consanguinal ) or marriage( affinal ) relatives taking in to a account the interest of the child . However, when there is no relative, the court may appoint other persons. I ncapacity of a minor is not absolute rather restricted (relative ). M inors approaching to maturity age are entitled to do some acts of legal nature. They can for example purchase school supplies like pen & pencils of daily necessities. Moreover , others like concluding contracts not in excess of 300 birr under the authorization of the tutor), receive and dispose income derived from their work at the age of 14 and above, Make will at age of 16 and above . 19 December, 2024 December 2024

20. Cont’d If there is no authorization from the tutor or there is excess of power, the act will be supposed invalid . Eg . Tola , 16, purchased a bike for 1500. This transaction is beyond the power of the minor and has no legal effect i.e., cannot be enforced . Minority may end when the child attained majority (full age of 18 years) or emancipated . A child maybe emancipated by marriage concluded after he attained 16 years upon authorization of appropriate government organs for serious reasons . He may be explicitly emancipated by court decision after he attained 14 years considering his maturity & practical necessities to enable the minor to act by himself. B). Insanity and infirmity : a person’s mental faculty or understanding may be affected due to various causes like mental disease, illness, old age, accident or disability. As a result, the person may lack capacity of understanding the nature and consequences of his act. 20 December, 2024 December 2024

21. Cont’d Accordingly, “an insane person is one who as a consequence of his being insufficiently developed or as a consequence of a mental disease or of senility is not capable to understand the importance of his action”. (see articles arts 339& 340 of the civil Code). Here insanity refers notorious insanity. Persons who are inmate of medical institutions or for whom a watch over is kept in rural areas are considered to be notoriously insane. The law extends full protection to the interest of such persons and their heirs by making their acts invalid . Infirm person on the other hand are persons like deaf-mute who because of permanent infirmity are not capable of taking care of themselves or to administer their property. The law also makes juridical acts of permanent infirm persons invalid as the acts are not made with consent free from defects. C). Judicial Interdiction : refers to court declaration that restricts the capacity of a person. Persons with mental or physical problem may come under full protection by being judicially declared as incapable of concluding valid juridical acts. In effect, judicially interdicted persons will not be allowed to enter into juridical acts . c 21 December, 2024 December 2024

22. Cont’d Instead, his personal and economic affairs will be taken care by organs of protection to be appointed by the court i.e. guardians and tutors NB : Judicially interdicted persons (JIPs) are legally prohibited from performing any juridical acts unless the law expressly allows them and therefore any acts of JIPs are invalid. However persons who are insane or infirm are not prohibited from doing juridical acts, but they can invoke defect in consent or the impact of their health condition as a ground to invalidate such acts. So any person seeking complete legal protection can apply to the court in order to get better protection under the organs of protection like guardians and tutors . D). Legal Interdiction Legal interdiction is a process where certain rights of a person may be withdrawn as a result of criminal conviction passed on him. The interdiction concerns his right to administer his property so that he cannot exercise the right of an owner. For e.g. He cannot enter in to contractual relations nor operate business For his proprietary interest, a tutor will be appointed; While he himself will take care of his person, no need of guardian as his mental faculty is intact. 22 December, 2024 December 2024

23. Cont’d F). Foreign Nationality - This is special kind of incapacity where the person is disabled from making certain acts while he is of age and/or his mental faculty is intact. The incapacity is not however related to exercise of civil rights but of political ones like participation in the administration of the country . The law makes foreigners incapable to participate in to latter affairs, i.e., they cannot elect & be elected for political power. These are rights where citizens only can participate. Sometimes such restriction extends to certain economic activities and procedural barriers. For example, in Ethiopia, foreigners cannot engage in financial sector (banking and insurance) and in others, there are such additional requirements as being resident and work permits, etc . 23 December, 2024 December 2024

24. CHAPTER TWO: GENERAL CONTRACTS What is a contract? Practically every personal business activity involves a contract: Purchase of television set Enrollment in college Rental of an apartment Taking a taxi Purchase of groceries and stationeries, etc . Contract is a binding agreement. It is a promise or the 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. Ethiopian Civil Code under Art.1675 also defines the concept of contract. Art 1675 - “A contract is an agreement whereby two or more persons as between themselves create, vary or extinguish obligations of proprietary nature.” 24 December, 2024 December 2024

25. Cont’d Elements of the definition of ‘contract’ under Ethiopian law A . Contract is an agreement… the basis for contract is an agreement (consensual), not legally imposed. But this does not relate to each & every agreements, rather agreements with intention to be bound. B .… two or more persons- contract presupposes the existence of at least two persons, that is one cannot contract with himself. The law does not put the maximum limit. C . …. as between themselves … this shows the limit of effect of contracts. It only binds the parties to it and do not affect the right of third parties (outsiders). D . …. create, vary or extinguish … this recognizes freedom of contract i.e. the parties can agree on any subject matter of their choice in creating new obligations, varying/modifying that already existing or even extinguishing them but subject to mandatory provisions of the law. E. … Obligations of proprietary nature – means ordinary contract creates obligations of patrimonial (economic) nature, that is, which can be expressed & valued in economic or money terms. Hence it excludes agreements of status such as marriage, betrothal, adoption, etc . 25 December, 2024 December 2024

26. Cont’d Contract serves as one of the sources of obligations. Some obligations originate from the direct operation of law, that is, the law itself sometimes imposes obligations on persons. For instance: people are required by law to pay taxes on the incomes they earn. Contractual obligations are however those emanating from the free will of the parties . Formation of contracts (legal requirements for the formation of valid contract.) Art 1678 of the Ethiopian civil code enumerates the four basic elements for the making of valid and sustainable contract: Capacity, consent, object and form (if any). 1. Capacity : - Contracting parties should be capable of doing juridical act. i.e. acts which can give rise to legal consequences. Capacity is mainly governed under law of person & you can make a reference to it. Generally contracting parties should not be minors, insane, judicially interdicted person, and legally interdicted person etc. unless the law expressly permits. 26 December, 2024 December 2024

27. Cont’d 2. Consent : - It is the basis for any contractual relationships. Consent is an agreement that is free from any defect. One’s willingness & desire to enter in to and bound by the effects of such contract are expressed through consent. There is no contract legally imposed. But what are the modes/ mechanisms of expressing consent by the parties? We have two important channels- offer and acceptance . Offer means a person’s expression of intention to enter in to a contract. It is the proposal of one’s willingness to enter in to and to be bound by the contract. The person initiating contractual formation by offer is known as offeror . The response given to or one’s consent to the terms of offer is known as acceptance . Contractual negotiation will be completed & lead to the creation of binding contract when accepted by the other party called an offeree . The important requirement in both cases is that both offer & acceptance has to be specifically communicated to the other. Un-communicated or undisclosed offer cannot be the basis for acceptance & similarly un-communicated acceptance cannot also create a contract. 27 December, 2024 December 2024

28. Cont’d An offer or acceptance can be made in any form as orally, in writing, by signs normally in use or by conduct unless a special formality is prescribed . (i.e. making an offer is not form sensitive.) Under Ethiopian Law silence after offer is not count to acceptance i.e. it is not sufficient to create contract. But the law also recognizes certain exceptions which after offer silence amounts to acceptance. These include:- When there is duty to accept e.g. an offer made to public utility undertaking to get vital goods & services as to Tele, ELPA, etc When there is a pre-existing business relationships b/n the parties & when a proposal for variation or renewal is demanded by the other party. Ethiopian Law also enumerates certain acts which do not amount to an offer such as posting up tariffs, price lists or catalogues or displaying goods for sale, or an auction to the public. All these are considered as mere declaration of intentions and an invitation to treat any interested offerees . 28 December, 2024 December 2024

29. Cont’d Defects in consent  There are certain factors which may affect or vitiate the giving of free & full consent. Commonly known grounds for defect in consent under Ethiopian law are:- Mistake/ error, Fraud /deceit and Duress/ violence. I. Mistake is when one of the parties concludes a contract with some wrong or erroneous belief. Misunderstanding or misconception of certain factual or legal situation leads to a mistake. However the law does not recognize every mistake as grounds for vitiating consent. The two important tests should be proved:- Mistake must be decisive and fundamental . It is decisive when it is capable of convincing the other party to enter into contract. In other words, had it not been for erroneous belief, the other party would not have concluded such contract or concluded differently. Fundamentality requirement relates to the elements of the contract. This is when the mistake is committed on the person (identity or qualification) of contracting parties, the nature (type) of contract or the subject matter of contract or obligation assumed by the other party. 29 December, 2024 December 2024

30. Cont’d II. Fraud is when the deceitful practice of the other party erroneously leads to the making of the contract. In both mistake & fraud, there is misunderstanding of the real situation. But in the later case, erroneous belief is created by the fraudulent act of the other party or third party. Here also the fraud committed should be decisive so as to invalidate the contract. E.g. P, a well-known jewelry, approached Q and asked him to buy his 20 gm golden ear ring for birr 5000. Q being sure about P`s statement agreed to buy and paid the money immediately. But later on Q discovered that the ring is really made up of silver only with small covers of gold. Is such a contract valid? III. Duress is when the consent of the other party is obtained/ exacted by violence. Here consent is secured by coercive acts depriving ones freedom to make a choice. Such coercive act may be committed against the life, person or property of the party himself or to his close relatives (spouse, ascendants, descendants, etc ). However such act of violence should be reasonable i.e. serious & imminent (about to happen). Example:- Ato B was one of the influential coffee exporter in Jimma . One day he threatened Ato C, another coffee exporter, to sign on a cheque for birr 500,000 ordering the Dashen bank to pay. But Ato C now objects the payment under such order which is obtained by force. Can he succeed? 30 December, 2024 December 2024

31. 3. Object Object refers to the respective obligations of the parties. Any obligation assumed by the parties under the contract constitutes an object. Example- take simple case of contract of sale. Here we have two parties - the seller & the buyer. The seller’s obligation is mainly to deliver the thing sold & transfer its full ownership. The buyer’s obligation is mainly to pay the price of the thing. Hence the respective obligation of both parties constitutes an object of contract of sale. Object of contract could be one of the three types to do – to perform or achieve certain outcomes to give – to deliver /transfer something not to do –to refrain from doing some thing For a contract to be valid, object of the contract must be: Sufficiently defined : Parties to a contract must clearly state the object of their contract i.e. the obligations of the parties should be ascertainable . If the object of contract is not sufficiently defined or vague or ambiguous, it renders the contract void & unenforceable. Possible : performance of the obligation of the parties must be humanly possible. It should not be beyond the capacity or power of human beings. 31 December, 2024 December 2024

32. Cont’d… Initial impossibility renders the contract of no effect / void . E.g. a contract to construct a G+10 building by only using pure water. C. Object must be lawful & of good moral : t he object of the contract should not contravene legal provisions and go against the generally accepted moral standards. Failure to observe this rule also renders the K of no effect (void ab initio ) E.g. Contracts on the sale of land, sacred and cultural heritages/objects, to commit crime (contraband ). 4 . Form Parties can conclude their contracts in any form i.e. there is freedom of form. Mandatory or special formality comes by way of exception when :- the law expressly prescribes , or When agreed by the parties .  Owing to their nature, importance and the value involved, certain transactions may be required to be completed in special forms. The following are among the categories of contracts required to be made in writing:- Preliminary contracts made to facilitate the main contracts of special formality. Ex. contract of agency to sell immoveable property. Variation in the same form Any contracts relating to immoveable properties Contracts with public administration Certain contracts for longer period of time .E.g. K of insurance, guarantee, or loan exceeding 500 birr, etc 32 December, 2024 December 2024

33. Cont’d… The parties can by their agreement impose or create special formalities. E.g. written formality. Hence when a special formality is prescribed by the law or agreed by the parties, it has to be seriously complied with otherwise it remains void. Finally for those contracts of special form, signature of the parties & attestation by at least two witnesses are legally required . Effects of contracts A contract, once validly and lawfully formed, is considered as a law on parties creating it. Art.1731 (1) Civ. C.:- “The provisions of a contract lawfully formed shall be binding on the parties as though they were law” A voluntarily created relationship becomes a binding law on the parties so creating and any unjustifiable deviations from it will entail certain liabilities. E.g. duty of compensating for economic losses due to its breach (non-performance ). 33 December, 2024 December 2024

34. Interpretation of Contracts A contract validly formed has to be properly carried out. However dispute may arise between the parties over the meaning of the provisions of the contract. Such disputes are resolved by way of interpretation either judicially or extra-judicially . Interpretation is the process of ascertaining or discovering the true intention of the parties. However, the need for interpretation arises only when there is ambiguity, vagueness or equivocality of the terms/provisions of a particular contract. In other words, clarity avoids interpretation . Once interpretation is sought, it will be made based on custom, equity (fairness), good faith and the norms of normal business practice. The purpose is searching for the common intention of the parties. In achieving this, events and practices before and after the making of contract will be assessed. The context of the document may also give some support. If the problems cannot be resolved in discovering the joint intention of the parties, contract law favors positive interpretation and interpretation in favor of the debtor . 34 December, 2024 December 2024

35. Performance of Contracts Performance means the process by which one or both parties carry out his/their obligation under the contract. If contractual obligations are properly discharged, it serves as one ground for extinction of contractual obligation. In relation to performance, there are two persons- the debtor & the creditor. A debtor is a person who assumes an obligation and expected to perform for the benefit of the other party. A creditor on the other hand is a person who claims a right under a contract and demands its performance from the other party (the debtor). who may perform ?  Ethiopian law gives some flexibility as to who may actually perform contractual obligations. Hence performance can be made by any person authorized by the debtor (his agent), the court or the law. E.g. Guardians/tutors of incapables, liquidators of succession, trustees of bankrupt estate, etc. Hence , personal & direct performance by the debtor himself is exceptional & this is when :- i) It is essential to the creditor- for those performances requiring personal qualification or competence of the debtor ( E.g. artists, painter, professional service, etc.) . ii) It is expressly agreed by the parties. Here there is no need to prove essentiality to the creditor . 35 December, 2024 December 2024

36. Cont’d… Performance to whom made Basically performance (payment) has to be made directly to the creditor or to a third person authorized by the creditor (his agent), by the law or by the court (as tutors, liquidators, trustees, etc ). If there is still a doubt as to whom to pay, it is safe to deposit in the court of law or bank authorized by the law. However, payment to unqualified, incapable or doubtful creditor is not a valid performance and risks the debtor for double performance unless the real creditor confirms or the payment has benefited him . What should be performed? This is related to the subject matter of the contract. Performance relates to what is agreed in the contract, no more no less. The creditor is not obliged to accept the thing other than the one agreed in the contract be it in species, or amount (quantity) or quality. However, when it comes to fungibles (things or items replicable/ interchangeable with one another in nature as cereals, coffee, etc ), minor or small deviations in quality or quantity may be tolerated. Still the debtor cannot go below the average quality. 36 December, 2024 December 2024

37. Cont’d… Place and Time of performance  Determination of place & time of performance of contract has an implication on cost, currency to be used, jurisdictional issues, payment of interest for default, etc. The law respects the agreement of the parties in determining the place and time of performance i.e. the agreed place & time. In the absence of such agreement, payment will be made in the address (residence) of the debtor (place ). Transfer of risk  Risk in contract means loss, damage or deterioration of the subject matter of the contract. It relates to a K for determined or specific thing such as horse, chair, sack of grain, cask of wine, etc. Here the point is that who bears the risk if the subject matter of the contract is lost, damaged, reduced in value, etc. Under Ethiopian law, the debtor bears the risk until the date (moment) of delivery. Upon delivery, risk is transferred to the creditor . Hence the moment of delivery is the dividing line for the transfer of risk. 37 December, 2024 December 2024

38. Cont’d… However sometimes risk may be transferred to the creditor by legal supposition without there being actual transfer of the subject matter of contract. This happens when the creditor is late in taking delivery. Lateness in taking delivery transfers risk to the creditor and the later is obliged to discharge his obligation (ex. Pay the price) even if the subject matter of contract is lost or deteriorated in the hands of the debtor.  E.g . Tola sold 10 quintals of fresh mango to Chala , an owner of fruits store. Tola is ready to deliver on agreed date_Sept.1, 2012 E.C.), but Chala failed to appear for 5 consecutive days despite Tola`s repeated calls. The fruit was totally destroyed in one of the nights due to a heavy rainfall. Who shall take the risk for the loss? Since the creditor ( Chala ) is late in taking delivery though repeatedly warned, he bears the risk and therefore he will be compelled to pay the price even if the fruit is no more there. 38 December, 2024 December 2024

39. Variation of Contracts  To vary a contract means to change, modify or alter the terms or provisions of an already existing contract. It is the situation where one or both parties require the revision of the original terms of the contract for different reasons as change of economic situation, problems of performance, etc .  A contract validly formed will remain in force even if the obligation of a party becomes more burdensome due to certain unforeseen event. Ethiopian Law does not admit variation for change of market or economic situation rendering the obligation assumed more onerous. The court is strictly prohibited from interfering on such grounds. It is up to the parties to regulate the consequences of possible future events either in their original contract or a new one to adjust such changes. The justification for such prohibition is mainly to guarantee security of trade and to avoid high probability of litigation. Judges cannot also accurately assess the changes in economic matters .  The above prohibition is a generally recognized rule. But exceptionally the Law also recognizes limited grounds for court variation of contractual terms. . 39 December, 2024 December 2024

40. Cont’d… Exceptional grounds for court variation of contractual terms When there is a special relationship between the parties demanding a special confidence and loyalty to treat each other. The law expects a flexible solution when the parties are specially related as blood, marriage or other close relations as patient-doctor, client-lawyer, agent-principal, etc When the contract is with public administration & when the decision (law) of such organ renders the obligation of the other party more burdensome. Here the contract is varied in favor of the non-government party affected by the official decision or law. When performance is partially impossible & when cancellation of the whole contract is not justified. Here variation is made proportionately by reducing the part impossible. When the court grants period of grace for the other party. Grace period (additional) time may be granted when time of performance is not sufficient & reasonable. 40 December, 2024 December 2024

41. Cont’d… Examples… Ex1 . Abdissa concluded a contract of supply of sugar to Ambo University at 15 birr per Kg for 2 years. But after 6 months the price of sugar has alarmingly increased to birr 30 due to shortage of sugar cane. Abdissa wants to adjust the terms of contract. Can he succeed? Here there is no way to revise the terms of contract unless they have a variation clause in their original contract or latter agreed to regulate such change of market situation . Ex2 . Jemal is a known contractor in A.A. He agreed with the Oromia Road Authority to construct the new Ambo- Wolliso road. However after Jemal has begun his work, the government passed a decision imposing 15 % tax on gravel stones. This has created difficulty for Jemal and incurred an extra expense of 800,000 birr. What should he do? Jemal can demand the revision of the K b/n him and the authority to the extent of the inconvenience created by the official decision of the government or claiming damages for extra costs incurred. 41 December, 2024 December 2024

42. Non-performance of contract and its remedies An agreement lawfully formed should be properly discharged. Failure to do so entails certain liabilities. Non-Performance of a contract occurs when the other party (debtor) fails to carry out his obligations under the contract. It is breach of one’s contractual commitments. This may include total or partial failure (inadequate performance) or delayed performance . When the fact of non- performance is proved, the aggrieved party who has performed the obligation on his part can invoke one of the remedies for breach. However, before involving such remedies, giving default notice is an important precondition. Default notice is a notice (reminding) by which the creditor indicates that he wants to obtain performance of the contract. It means a warning which brings the maturity of the debt and possible measures to follow to the attention of the debtor. Giving default notice is advantageous in that it reduces court litigation when complied, transfers risks, serves as beginning for default interest, etc. 42 December, 2024 December 2024

43. Cont’d…  There are some instances where the creditor may not be required to give notice. Notice becomes unnecessary in the following circumstances :- Where the obligation is to refrain from doing something (not to do obligation) & when already breached. Where the debtor has declared in writing that he will not perform. This also serves as a ground for unilateral cancellation of contract. Where the parties have agreed in the contract that notice will not be given. Here remedies can be invoked automatically. When performance is expected on a particular date or occasion & when such time is expired. E.g. Cake to be prepared on weeding ceremony or birthday, etc  The debtor may fail to discharge his obligation even after being warned by default notice. Such breach of duties entails certain consequences. The law has devised some remedies to which the creditor may resort. These remedies are:- Forced performance (specific performance) Cancellation(judicial/unilateral) Payment of damages/compensation 43 December, 2024 December 2024

44. A ). Forced performance: -  As its name partly explains, forced performance or sometimes specific performance means a remedy by which the court orders the debtor to carry out his obligation. It is a remedy where the debtor is forced (compelled) to execute his contractual commitments. It is an exceptional remedy in that it requires court order and proof of two stringent conditions. The two cumulative conditions to obtain forced performance are: - Proof of special interest of the creditor, & Consideration of the liberty of the debtor.  Special interest of the creditor relates to the essentiality of performance by the debtor, that is, if there is no possibility for the creditor to obtain a similar performance from other sources or even if there are other Sources where it entails the creditor considerable expenses. E.g.Case of corporations providing vital goods & services.  Consideration of liberty of the debtor is that such order of the court should not violate the personal liberty of the debtor. This is because contractual obligation does not result in loss of personal liberty. Exercise:- Muger Cement Factory agreed to sale 500 quintals of cement to Tokkummaa Building Works PLC in Sept. 2012 E.C .for birr 250 per quintal. But the factory failed to deliver the products on time. Now there is no domestic factory producing the same item. Importing from abroad is also highly costly i.e. four times the agreed price. Can the PLC demand for forced performance? 44 December, 2024 December 2024

45. B).Cancellation of contract  If non-performance occurs & when forced performance has not been or cannot be sought, the next common remedy is cancellation. It is the mechanism of avoiding or bringing to an end a contractual relationship due to reasons of non-performance. There are two types of cancellation: Judicial and unilateral I). Judicial cancellation  This is when contractual relationship is avoided through the medium of the court. A party aggrieved by non-performance can initiate cancellation action and the court can declare cancellation upon finding justifiable grounds. In its decision, the court will be guided by the requirements of art. 1785 of Civil Code: as fundamentality of the breach & its effect on the very essence of the contract, the interest of parties, good faith, etc. If the contract is successfully cancelled, the effect is reinstatement to the original position before the making of contract. Exercise: - Ato Kuma is a mechanic in Ambo. He agreed with Ambo University to maintain two vehicles and finalize them within two months. Though 45 days have been lapsed, no significant work is carried out. Being worried about the delay, the University warned him by giving 20 days additional time. At the end of additional grace period, no more than ¼ of the maintenance work is done. Now the University wants to take the matter to the court for cancellation of the contract and claim damages for losses suffered. What do you think will be the outcome of the action of the University? Give your opinion under arts.1784 & 1785 of Eth. Civ. Code! 45 December, 2024 December 2024

46. Cont’d… ii ). Unilateral Cancellation  This is also another mode of cancellation where one of the parties unilaterally cancels without going to the court. It is an exceptional right or power derived either from the contract itself or the law. In principle cancellation should be demanded through the court.  Ethiopian law recognizes certain limited & exceptional grounds for unilateral cancellation. These are:- Cancellation clause- this arises from the express stipulation in the contract. It suffices when the conditions are satisfied. Expiry of time limit in the K or upon giving notice- This is one of the consequences of giving notice. When performance becomes impossible __ this is the last option when variation cannot be effected by way of reducing the impossible part. Anticipatory breach- this is when the debtor informs the creditor of his refusal to perform in writing before the due date. Here there is no purpose to go to the court. 46 December, 2024 December 2024

47. C).Payment of Damages/Compensation  Damages is a payment made to the creditor by the debtor to make good what the creditor has lost due to the debtor’s failure to perform his obligations. It is a form of monetary reparation (compensation) paid for economic losses due to non-performance.  Damages can always be claimed by proving the fact of non-performance & resulting losses even in the absence of fault (=strict liability). The debtor is liable to pay damages except when his failure is due to force majeure.  ‘ Force majeure ’ means an occurrence (event) that the debtor could not have normally foreseen and prevents him absolutely from performing his obligations. Hence any foreseeable occurrences or those only rendering the obligation more onerous are not considered as force majeure. The following are some of the cases of force majeure (Art 1793 Civil Code):- Unforeseeable act of persons outside the contract Prohibition of the performance of the obligation by a newly enacted law. Natural catastrophes such as earthquake, lightening, floods, etc. International or civil war Death or serious accident or unexpected serious illness of the debtor himself . 47 December, 2024 December 2024

48. Cont’d…  The amount of damages/compensation can be agreed up on in the contract between the parties (penalty clause) or assessed under the Law.  The amount of compensation that the debtor pays is as a rule equal to the damage that the creditor has suffered. That is the damage normally & reasonably expected due to breach of a particular contract. This is called normal damage .  Some times greater damage than the normal damage may be demanded when the debtor is informed with special situation & need of the creditor or such is due to the debtor’s intention to harm the creditor. Lesser Damage can also be paid when the debtor proves that the loss is less than the normal damage. What do you think is damage for money debts? Payment of default interest is the substitute for damages in money debts. The rate of interest may be fixed in the contract (contractual rate) or paid at the rate fixed by law (legal interest) that is 9 %. NB: Compensation may be claimed as an independent remedy or in addition to other remedies for non-performance of a contract. 48 December, 2024 December 2024

49. Cont’d… Exercise Hundessa , a known comedian in Ambo, agreed to lead a music concert organized by Climax nightclub. Many people from Ambo and the surrounding bought tickets to attend the concert. Bedele brewery agreed to supply a great deal of beers. Elifora Agro-Industry also agreed to supply fresh meat for the occasion. However the concert cannot be conducted as scheduled because Hundessa changed his mind and went to Addis for another attractive concert to be held in Sheraton Addis. Please give legal advice as to what remedies are available for the nightclub and those affected by the act of Hundessa ? 49 December, 2024 December 2024

50. Extinction of Contractual obligations Contracts are not lifetime commitments. They are made by people for a certain period of time for some specific purpose. Hence such contractual relationship may extinguish (come to an end) due to various causes . The following are common ground extinguishing contractual relations under Ethiopian Law: - Where they are properly and adequately performed by the parties in accordance with the terms of contract= ( performance ) Where the contract is invalidated for problems at formation stage or cancelled due to problems of performance. Where the contract is terminated i.e. its future force & effect is avoided either by the agreement of the parties or the court order. When a new obligation is substituted for the original obligation by the agreement of the parties called novation. E.g. Kassim borrowed birr 2000 from Ifa . But Ifa is unable to pay. Thus they agreed that Ifa will continuously deliver his future coffee harvests to Ifa . Hence the original loan contract is changed( novated ) to new contract of delivery. When the debtor’s obligation is set off by an obligation owing from the creditor to the debtor – reciprocal cancellation of two debts. E.g. X owes 1500 birr to Y; while Y owes 1000 birr to X in another contract. Here the two debts can be set off up to 1000 birr. X will only pay the remaining balance i.e. 500birr 50 December, 2024 December 2024

51. Cont’d… vi. When the positions of creditor and debtor are merged in the same person – called merger . E.g. M & S are father and son. M lent 1200 birr to his son (S). But M died before receiving the money from S. Now S is the only heir of M and he is no more a debtor because there is merger b/n S & the rights of his father (M). Vii . When the creditor has not demanded performance of the obligation within the period fixed by law called period of limitation . ( ይርጋ ) **** Invalidation vs cancellation of contract ****  Invalidation is making an effective contract ineffective when it has a problem in its formation. We said that there are 4 requirements for the formation of the contract. If a contract is affected by defect in consent or by the incapacity of one party, such contract is voidable , i.e. can be invalidated up on the request of the party whose consent or capacity is at stake. If invalidation is not required within 2 years from the ground for invalidation having disappeared, the contract shall not be invalidated. (arts.1808(1) &1810(1) ) If the contract is affected by defect in its object or form, it is invalid from the very beginning ( void ab -initio ) and hence any one can require the invalidation of such contract.  Cancellation on the other hand is, making a contract ineffective when there is nonperformance. Here there is no problem of formation. 51 December, 2024 December 2024

52. Chapter Three: Law of Sales  Is one of the special type of contracts governing relationship (rights & duties) of persons involved (seller and buyer). Definition of contract of sale Art. 2266 of the civil code defines K of sale as: - “ A contract of sale is a contract whereby one of the parties, the seller, undertakes to deliver a thing and transfer its ownership to another party, the buyer, in consideration of a price expressed in money which the buyer undertakes to pay him.” According to the above definition, there are some basic defining elements of contract of sale. Sale is a contract – seller-buyer relationship is created by contract and hence all the validity requirements of contract should be there i.e. there must be a free consent, the contracting parties must be capable, the object must be defined with the sufficient precision, possible and lawful and formal requirements must be satisfied. There must be two distinct parties - the seller and the buyer . Involves a reciprocal obligation of the parties which constitute object of contract of sale. The seller’s obligation is to deliver the thing sold and transfer its ownership, while that of the buyer is to pay the price for the thing. 52 December, 2024 December 2024

53. Cont’d… Consideration : Price is significant in determining whether the contract is a sale contract or some other kind of contract. The price should be expressed in money which is meant to distinguish contract of sale from barter. Involves a thing as its subject matter. Formation of Contract of sale  Formation of sale K is more or less similar to that of general K. It requires all the validity conditions. That is parties to it should be capable and give free consent. The object of sale K should also be lawful and of good moral and comply the required formality, if any. The normal rules of offer and acceptance will also apply.  A sale contract may relate to an existing thing or things to be produced in the future when such is possible. If a thing is capable of being produced later on, the K is valid. Moreover, a contract of sale may relate to thing belonging to the seller himself or to the third party. For instance when the agent /esp. commission agent/ sells the thing belonging to his principal. 53 December, 2024 December 2024

54. Performance of contract of sale Like any other contract, sale contract manifests the reciprocal rights and duties of the parties to it. Hence obligations under sale K have to be properly carried out by the parties . Obligation of the seller  The seller assumes certain obligation under contract of sale. This can be imposed by the law or the contract. Among the legally imposed obligations of the seller:-obligation to deliver the thing, obligation to transfer ownership and warrant against total or partial dispossession, and obligation to warrant against defects and non- conformity are the common ones . A. Obligation to deliver :- t o deliver means to hand over the thing to the buyer. The seller can discharge his obligation by using one of the three modes of delivery. i.e. actual delivery, Constructive delivery, Symbolic delivery /delivery by documents/ 54 December, 2024 December 2024

55. Cont’d…. Actual delivery is when the seller actually and physically hands over the thing to the buyer. Constructive delivery is when the parties do something which transfers intention to possess such as declaration by the seller to hold the thing on behalf of the buyer or when the buyer himself is originally in possession of the thing. Example: - Kuma is a farmer in Guder . He sold his only cow to his neighbor ( Bacha ). But Bacha allowed him to keep the cow and use half of the milks. Is there delivery? Yes, because now kuma holds the cow with a changed mind i.e. on behalf of Bacha . In symbolic delivery , a document or some other thing representing the thing sold is delivered. E.g. Delivering the title deeds, bill of lading, key, etc. The thing delivered should be the one agreed in their contract. Place and time of delivery is similar to that of general contract . B. Obligation to transfer ownership and warrant against Dispossession :- Mere delivery may not be sufficient to transfer ownership. Thus the seller should discharge his duty by transferring unassailable /unchallengeable/ right or title to the buyer. 55 December, 2024 December 2024

56. Cont’d….  The title transferred should be valid and peaceful i.e. not encumbered with the rights of third person. The seller is held to give legal warranty for the peaceful enjoyment with the thing sold i.e. seller gives warranty against total or partial dispossession. Exercise: - Melese sold a used tape recorder to Dawit for birr 300 . However it was discovered later on that the real owner of the thing is not Melese ; but Simeneh who kept it with his friend ( Melese ). So identify the right available to Dawit and the liability of Melese ?  However , the buyer may not enjoy with the benefits of implied /legal/ warranty. These are: Knowledge of defective title during the making of K i.e. when the buyer knowingly acquires the thing encumbered. Exclusion of legal warranty against dispossession by agreement. But such exclusion clause may not apply in case of concealment of certain facts. C. Obligation to warrant against defects and non-conformity: The seller has an additional obligation that the thing delivered should not only be peaceful /free from the claims of third persons/, but also it should be useful /serve its purpose/ and as agreed in the contract (usefulness). 56 December, 2024 December 2024

57. Cont’d…. Warranty against defect :- Defect of the thing relates to the quality, utility, use or usability of the thing i.e. whether the thing can serve for the purpose it is purchased . A thing sold can be considered as defective and hence warrantable by the seller when: - It does not possess the quality required for its normal use or commercial exploitation. This is the quality normally required for personal use /consumption/ or for resale in case the buyer is the merchant /merchantability/. Ex. Soliana bought a 21-inch Konka TV. But the TV can not show any picture i.e. has only sound (lacks visual quality) It does not possess the quality for particular use agreed expressly or implied from the K. This is when the interest of the buyer is communicated but the thing delivered lacks such quality. Ex. Taye is a coffee exporter. He agreed with Basha for supply of coffee. However Basha delivered a coffee of ordinary quality. It is defective for it does not satisfy export standard. It lacks the described quality or specifications. This applies when the detailed qualities or compositions /contents/ are agreed but the thing does not conform to such description. 57 December, 2024 December 2024

58. Cont’d….  The buyer also, before invoking the benefit of legal warranty, has to comply with the following:- - Checking /examination/ of the thing during delivery esp. for obvious defects Prompt notification as to the existence of any defects Careful /prudent/ examination Warranty against Non-conformity :- the seller stands as a guarantee whether the thing is the one agreed in the K. Non–conformity is when there is a deviation between the one agreed in the K and that actually delivered . Accordingly, there is non- conformity and hence warrantable where the seller delivers:- Part only of the thing /partial delivery/-here the other part remains to be delivered. Greater or lesser quantity than agreed A different thing or of different species than agreed Obligation of the Buyer Sale K imposes reciprocal rights and obligations on the parties to it. Thus, the buyer is expected to discharge certain obligations. These are:-  Obligation to pay the price  Obligation to take delivery 58 December, 2024 December 2024

59. Cont’d….  The main obligation of the buyer is payment of price. Sale K is of onerous nature which is based on return of values. Price is the value given in return for the thing delivered. It is expressed in money, not in goods. Payment of price may be effected either in cash or by issuing commercial papers as cheques , bill of exchange, etc.  Taking delivery is another obligation complementing the seller’s obligation to deliver. Failure to take delivery transfers risk by virtue of law and the buyer may be compelled to pay the price even if the thing is lost or damaged after such date . Common obligation of the seller and the buyer  There are also certain obligations to which the seller and /or the buyer may be liable either individually or jointly as the case may be. Such obligations pertaining to both are: - Covering expenses – such expenses may include those incurred during the making of K, Payment, delivery, transportation, taxes, etc Preservation of the thing – both the seller and the buyer have the reciprocal duty to preserve the thing at the expense of the other. Failure to do may entail some liability to the other party 59 December, 2024 December 2024

60. Cont’d…. Exercise : - Aman concluded a K of sale of cabbage with Fatuma for her small restaurant in Adama . After delivery, Fatuma found that some of the things delivered are useless. She immediately notified the fact to Aman and warned him to take it back. After waiting for one day, Fatuma left it out. The thing was totally consumed by the wandering goats over the night. Is the act of Fatuma justifiable? Non – Performance of contract of sale and Its Remedies  One of the Parties to the contract of sale may fail to carry out his /her obligation. If such happens, there are legal mechanisms devised to assist the one affected by such breach. After fulfilling the procedural requirements/ as default notice/, the seller or the buyer can invoke one of the following remedies: Specific /forced/ performance Cancellation of the K Payment of damage 60 December, 2024 December 2024

61. Chapter Four: Law of Agency Agency is a way a person performs legally binding act by the instrumentality of another person . The person acting by the instrumentality of another is called principa l. The person who represents another in juridical acts or performs on behalf of another is called the agen t . The principal is the one who gives instructions for getting things done by another in the way he likes; while the agent is person who receives instructions from the principal and actually does the act. The person who actually deals with the agent is called third party. Sources of Agency A person to act on behalf of others shall have an authority. The source of authority may be the law or contract. Sometimes the law authorizes a person to represent another. In majority of cases, the authority arises from agreement. Authority by operation of Law :- the law authorizes a person to represent another person. These are persons incapable to enter into juridical acts such as minors , persons with mental defect and disability and legal interdicts persons whose economic interest is at stake and legal persons . 61 December, 2024 December 2024

62. Unauthorized Agency  This kind of agency is termed in popular legal language as agency of necessity or representation that takes place in case of urgency . The term-unauthorized agency is used to mean the person who acts on behalf of another who has no prior approval or consents of the same. He thus acts deliberately to safeguard the interest of another from unexpected happening knowing that he has no authorization to do so. Say for example Ato Dagim gave a truck full of tomatoes for Ato Girum to confine it for two days until he takes back. Unfortunately, Dagim did not return for weeks and the tomatoes are about to rotten. What would you do if you were encountered with such scenario? If Girum sold the tomatoes before it is rotten , it will be a case of unauthorized agency. However, you should not have any possibility of communicating with person to obtain authorization . Curator:- Curator is a person appointed by a court to do an act or certain kinds of acts where the person to be represented is not in a position to appoint an agent for he is away, ill or for any other cause. The court appoints a curator up on application of relatives or spouse of the person to be represented. Once appointed the kind of relationship between an agent and principal will be established b/n the curator and the represented. 62 December, 2024 December 2024

63. Contractual Agency The second and usual source of agency is contract. Art 2199 of the code defines agency as follows. “ Agency is 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.” According to this definition, agency is a contract, a special type of contract. Hence, all the elements of a valid contract must be fulfilled. Kinds of Authority of an Agent The authority of an agent may be actual or apparent .  The power of an agent is said to be actual where the power is given explicitly in writing or orally or by implication. The person may be authorized implicitly i.e. by implication. For example, Jafer is authorized to sell kebede’s automobile. The authority to sell the automobile is authority expressly given. However, this authorization has also implicitly authorized Jafer to receive the price, deliver librie and so on. Implied authority is authority that naturally follows from the express authority.  Apparen t authority is authority that third parties infer or assume a person as an agent, though actually he has no either express or implicit power. Due to various reasons, there is appearance that led third parties consider a person as an agent. Apparent authority cannot fully bind the person represented. 63 December, 2024 December 2024

64. Cont’d… Authority conferred on the agent may also be special or general .  General agency is agency expressed in general terms without specifying which act to do but simply appoint one as an “agent”. Such power of an agent confers power to perform acts of management such as preservation of property, collecting and discharging of debts, selling perishable commodities and crops.  Special agency on the other hand, is power conferred in specific terms. Acts other than acts of management require special power of agency. For example selling or mortgaging house, investing capital, singing bills of exchange, making donation, bring legal action, etc. require power specifically given for that purpose. Effects of Agency The principle regarding effect of agency under Ethiopian law is provided under art 2189. Art. 2189 complete agency Contracts made by an agent in the name of another within the scope of his power shall be deemed to have been made directly by the principal The principal may avail himself of any defect in the consent of the agent at the time of the making of the contract. 64 December, 2024 December 2024

65. Cont’d… Any fraud committed by the agent may be set up against the principal by the third party who entered in to the contract with the agent.  Where an agent acts in the name of the principal and according to the authority given to him, the agency is called complete agency. In case of a complete agency i.e. when the agent acts using the name of the principal and according to the instruction of the principal, a direct contractual relationship will be established b/n the principal and the third party. The contracting parties are thus the third party and the principal. Principal will be considered as though he has personally and directly made the contract. The result is that the agent will be considered as an outsider after he has effected the dealing with the third party representing the principal. For all the consequence of the contract- benefits and responsibilities, the answerable parties are the principal and third party . For example Tirusew , the agent, sold Maru’s car according to the instructions of and using the name of Maru . Delivery of the car however is not made. Here, the buyer cannot proceed against Tirusew , the agent, for the delivery of the car. He can rather directly ask Maru to deliver the car as though he personally contracted. The same is true for claiming the benefits. 65 December, 2024 December 2024

66. Cont’d… Similarly, if the consent of the agent is affected during effecting the main contract, it is the principal and not the agent who can invoke to invalidate the contract. The third party can also invoke against the principal fraud committed by the agent . However, if the agent doesn’t use the name of the principal and/or he exceeds his authorization, a direct contractual relationship b/n the principal and third party will not be created. The principal will not be legally bound by the obligation of the contract. He can thus repudiate it or ratify it as his own act as he chooses. In this case, the third party can directly proceed against the agent as the contracting party is taken to be the agent . Rights and duties of Parties Right of one party is duty of another. This is so as rights and duties are correlatives. Duties of agent T o act in strict good faith :- The agent should act with utmost care towards the principal. He should not conceal any circumstance from the principal even if that may lead to revocation of the agency or variation of its terms. 66 December, 2024 December 2024

67. Cont’d… The agent should act in the exclusive interest of the principal. He should not give priority to his interest or drive any benefit without the knowledge of the principal from the transaction he performs in pursuance of his authority. He should not also use to the detriment of the principal any information obtained in the process of representation . Duty of care and diligence The agent when acting on behalf of principal shall take due care and diligence. The standard of measuring such as is the diligence and care by a` bonus pater familias ` – good father (art. 2211). If he commits defaults in the performance of the act that a good father wouldn’t, he will be liable. Duty to account The agent has the duty to account to the principal any benefits and income he receives and paid in the course of his activity. This is so even if the income and sums he receives are not owed to the principal. But he used the principal’s money, he will be liable to pay interest at the legal rate (art. 2210 ) Duty to act in person: The agent is a delegate and cannot delegate another to represent the principal. Ppal needed personal quality of agent. 67 December, 2024 December 2024

68. Duties of the principal Duty to remunerate:- the principal has the duty to remunerate the agent. Such duty of the principal usually arises from the contract of agency. The parties will usually agree on the extent of remuneration payable to the agent during the agreement. Duty to make advances and reimbursement:- The affairs of the principal are to be taken care of by the agent not from his pocket money. The principal should make available in advance all sums necessary to carry out the activity. And in case the agent incurred expenses for the proper carrying out of the agency, the principal has the duty to reimburse (refund) the expenses . Duty to release the agent from liabilities The principal has the duty to release the agent from any liability he incurred while executing the agency. As such, liabilities are incurred while the agent was acting in the interest of the principal. The principal has the duty to free the agent. The principal has also duty to make good the damage he sustained in the course of the representation unless it is caused by his own fault. 68 December, 2024 December 2024

69. Termination of Agency   Termination by the Parties Revocation The principal is always at liberty to revoke or cancel the power of agency conferred on the agent without the need to give justification. This discretionary power of the principal cannot be avoided by the contrary agreement. The principal however is liable to make the damage caused to the agent by the act of revocation. Renunciation Renunciation is termination by the agent. The agent can terminate the agency relationship but by giving notice to the principal. The purpose of the notice is to enable the principal to take measure to protect his interest and thereby avoid damage that may be caused by sudden termination of the agency. However, if the renunciation causes damage to the principal, the agent is liable to compensate it unless continuing with the agency would cause suffering and considerable loss to him Termination by operation of the law The law terminates the agency relation when either of the agent or the principal dies, declared absent, becomes incapable or adjudicated bankrupt (art. 2230 &2232) . 69 December, 2024 December 2024

70. Chapter Five: Law of Traders and Business organizations Businesses are operated by persons, whether physical or juridical. However, sole businesses or sole proprietorships can only be run by physical persons. Physical persons who operate a sole business are referred to as traders . Business:- Article 106 of the new Commercial Code defines business as “an incorporeal movable consisting of all movable property brought together and organized for the purpose of carrying out any of the commercial activities specified in Art.5 of this Code.” Thus, the ultimate essence or quality of any business, as can be gathered from the above definitional provision, is its incorporeality irrespective of the existence of corporeal elements . The importance of the incorporeal elements figures in prominently under Article 112, which stipulates: (1) A business consists mainly of a goodwill . A business may consist of other incorporeal elements such as: (a) the trade-name; (b) the special designation under which the trade is carried on; (c) the right to lease the premises in which the trade is carried on; (d) patents or copyrights; (e) such special rights as attach to the business itself and not to the trader.   70 December, 2024 December 2024

71. Cont’d…  According to Art. 110, the corporeal elements that make up a business include equipments and goods. Yet, immovables , i.e. the business premises and the land on which the premises have been erected, had been excluded from the ambit of the definition of the elements of a business. Only one aspect of the immovables , namely the right to the lease of the premises, was incorporated in the enumeration of the elements of a business. In a nutshell, the term “business” embraces tangible and intangible assets, including tools, equipments , raw materials, goods in stock, good will, trade name, trade mark, patent, copy right, and the right to lease of the premises. But, immovable properties cannot form part of the business ( fonds de commerce ).  Hence, the land or buildings which form of the business premises and the fixtures on such premises are no part of the business even though they are owned by the trader himself. To a greater degree, the business is regarded as an entity distinct from its constituent elements, as long as the whole is more valuable than the sum of the constituent parts. In this sense, the business is a res , thing, or object over which a person can exercise property rights, including ownership, usufruct, and lease.   71 December, 2024 December 2024

72. Who are traders?  Traders are persons who professionally and for gain carry on any of the activities stated in Art. 5 of the Commercial Code . Art. 5 of the Com. Code enumerates 37 activities. If any person carries on any of these activities professionally and for gain, s/he will be taken as a trader. Few of these activities include:- dealing with movable and immovable items; exploitation of mines, quarries, construction activities; carriage; publishing; and printing, publicity and tour operation, operating financial activities, operating entertainment (radio, television), operating hotel and café services, operating funeral and related services, operating beauty, fitness, hair dressing establishments, massages etc.  All persons who operate a given task for profit may not necessarily be considered as a trader. Persons who undertake agriculture, forestry, fishery, cattle breeding, hand craftsman are not considered traders. If a farmer sells his sheep breed mainly from the resources of the land while he uses, he cannot be deemed as a trader. But if he sells products of agriculture by processing through agro- industry, he is considered as trader.   72 December, 2024 December 2024

73. The right to operate business  In principle every person is free to engage in any type of activity in any part of the country. This is a constitutionally guaranteed right (Art. 41 cum 32 of the FDRE constitution ). But, there are certain restrictions imposed by the law . Incapable persons:- Incapable persons cannot perform juridical acts. As trade activities are juridical acts, minors and interdicted persons are not free to carry on commercial activities. Art. 10 of the Commercial Code states: "Persons incapable under the Civil Code may not carry on any trade. Minors and interdicts cannot carry on trade activities even by tutors (Art. 11 of the com. code ). However where a minor is registered as a trader concealing his true age, his minority cannot affect third parties unaware of the true age (Art.13 and 103). Likewise, if incapacity of interdicted persons is not registered, the incapacity cannot affect rights of innocent third parties. Married persons:- S/he has to obtain the consent of the other spouse in order to carry on trade . The effect is that when the objection is registered, debts contracted by the trading spouse will not be considered as common debt of spouses and cannot be recovered from the common property of same or personal property of the objecting spouse. (art. 15-19)   73 December, 2024 December 2024

74. Cont’d… Foreigners : are not free to venture trade in Ethiopia. Before they operate trade, they need to obtain residence permit, work permit, investment permit and so on. Certain fields of trade are entirely reserved for nationals and non-nationals cannot at all engage on them. E.g. insurance and banking business . Associations:- Associations are organizations established to carry on non-profit making activities. Some examples of associations are religious organizations, political associations, civic /professional associations, NGOs, social associations, etc. Restrictions on Business organizations : Business organizations are grouping of people established to carry on trade activities for profit . They can however carry on only activities stated in the purpose clause of the memorandum of association - that they cannot venture on a commercial activity for which they have no business license. (Art 25). 74 December, 2024 December 2024

75. Business Organizations Art.172 of new commercial code defines BOs as: -“… an association established through a memorandum of association by persons who intend to cooperate and to bring together contributions for the purpose of undertaking an economic activity and of participating in the profit arising out thereof .” Association here refers to grouping of business persons and it doesn't refer to non-profit making activities. T he parties must join together in order to carry out activities of economic nature. A memorandum of association (MOA) is an instrument drawn up to establish a business organization . (art. 173) 75 December, 2024 December 2024

76. Business Organizations vs Associations Article 404 of the Civil Code defines an association as “ a grouping formed between two or more persons with a view to obtaining a result other than the securing or sharing of profits.” If profit is considered to be the underlying motive for the formation of a certain organization, then it is said to be a business organization. Associations are regulated by Articles 408-482 of the Civil Code whereas business organizations are governed by Commercial Code . While associations are being supervised by the office of associations of the Ministry of Justice (now attorney General) or the respective attorney offices of the Regional States, business organizations fall within the jurisdiction of the Ministry of Trade and Industry or the respective Regional States’ Bureaus. Associations are expressly prohibited from engaging in any of the commercial activities listed in Article 5 of the Commercial Code. 76 December, 2024 December 2024

77. Types of Business organizations Article 174 provides 7 types of Business organizations. These are: 1. G eneral Partnership 2. Limited partnership 3. Limited Liability Partnership 4. Joint Venture 5. Share Company 6. Private Limited Company and 7. One Person Private Limited Company. All business organizations other than a joint venture shall acquire legal personality upon registration in a commercial register (art. 175). A Business organization shall be established by MOA. 1 . General partnership (G/P/P)  Art. 183 of the commercial code defines General partnership as “a business organization whereby each partner is jointly and severally liable with the partnership for the obligations of the partnership .” Any agreement to the contrary may not be raised against third parties . The name of the partnership shall consist of the names of all or at least two of the partners followed by the words “General partnership ”.  MoA of General partnership shall include: firm name; head office and branches; name, address & nationality of each partners; business purpose; amount of monetary contribution by each partner; share of each partner in profit or loss; manager and agent of the partnership; period of time for which it is established. 77 December, 2024 December 2024

78. Cont’d… All partners are jointly and severally liable to any debt/liability of the partnership.  The creditors of the partnership however can demand payment from personal property of partners only after the partnership asset is exhausted. Creditors can demand payment of all or parts of their claim from personal property of one or more of other partners. Such a partner can then proceed against other partners to share the burden. This is the concept of joint and several liabilities.  All members of G/P/P can be appointed as manager. Non-partners can also be appointed as manager . 2. Limited partnership (L/P/P)  As per art.212, “A limited partnership comprises two types of partners:- general partners who are liable jointly and severally ;and limited partners who are only liable to the extent of their contribution.  Limited partnership has two categories of partners- general and limited partners with different rights and responsibility. General partners have the same rights and obligations like partners in general partnership. 78 December, 2024 December 2024

79. Cont’d…  They have joint and several liability to the creditors of the partnership where the partnership’s assets are insufficient to pay the debts of the partnership. They are also the ones to serve as manager. Limited partners, on the other hand, have no such liability. Their liability is limited to the extent of their contribution to the partnership. Creditors cannot proceed against their personal property unless they did not fully subscribe their contribution. They cannot also participate in the management of the affairs of the partnership even under the power of attorney i.e. they cannot be appointed as manager. That is why they are usually referred to as sleeping partners . If one acts as a manager, he shall be jointly and severally liable for any liabilities arising out of his activities and in some cases to some or all the firm’s undertakings . Limited partnership shall have a firm name that consists names of general partners followed by the word “ Limited Partnership ”. 79 December, 2024 December 2024

80. Cont’d…  MOA of limited partnership shall consist: firm name, head office and branches, name, address & nationality of each partners (both general and limited partners), business purpose, amount of monetary contribution by each partner, share of each partner in profit or loss, manager and agent of the partnership, period of time for which it is established etc. 3 . Limited Liability Partnership :- is a business organization formed by two or more persons to render professional services and services complementary thereto and whose liability is limited to the extent of their contributions .(art. 221) Professional service : is a service provided in line with a professional license granted by an appropriate organ “ Complementary service ” shall mean a service that falls under one or more professions and is related and necessary to provide the professional service . Nature: The partnership shall have legal personality distinct from its partners . The death, bankruptcy, departure from the partnership or any other change in the status of the partners may not affect the existence, right or obligation of the partnership. 80 December, 2024 December 2024

81. Cont’d…  The name of a limited liability partnership shall be as agreed by the partners and indicate the purpose of the partnership but shall not offend public policy nor the rights of third parties. The name of the partnership shall be followed by the words “Limited partnership”. Partners : Only professionals licensed by an appropriate organ to provide professional service or limited liability partnerships which render a service that is similar or related to the one rendered by the partnership may become partners. The general manager of the partnership shall be a natural person licensed to practice in the profession in which the partnership renders a service . If number of partners is reduced to less than 2, the partnership shall be dissolved, if at least not one member is added within six months. MOA of Limited liability partnership shall include: firm name, head office and branches, name, address & nationality of each partners, the type of profession of each partner that provides professional service together with his license number, business purpose, amount of monetary contribution by each partner, share of each partner in profit or loss, manager and agent of the partnership, period of time for which it is established etc. 81 December, 2024 December 2024

82. Extent of Liability of the Partnership : Cont’d …  Where a partner or an employee of the partnership who, in the course of carrying out the activities of the partnership, intentionally or fraudulently or negligently commits fault or causes damage, the partnership shall be jointly and severally, and without limit, liable with such partner or employee for the fault or damage . The partnership shall be relieved from liability where the injured party knew of the fact that the partner or employee who caused damage did not have the power to carry out the undertaking .  The partnership shall have insurance coverage to make good damage emanating from professional fault committed by the partners/employees. 4 . Joint Venture :- A joint venture is a business organization without legal personality established by two or more persons through a memorandum association (art.234). Registration formalities required of other business organizations are not applicable to a joint venture. The effect is that the organization will be kept secre t. What is known or disclosed to third parties is its manager who is responsible for all faults and commitments arising out of the business. 82 December, 2024 December 2024

83. Cont’d… Where a partner who is not a manager takes part in the management of a joint venture, he shall be jointly and severally liable with the manager to third parties . A partner who is not a manager of a joint venture shall meet liabilities towards the manager of such joint venture only to the extent fixed in the memorandum of association . Where a joint venture is made known to third parties, it shall, as of such date, be regarded, insofar as such parties are concerned, as a general partnership . A joint venture shall be managed by one or more managers who need not be partners. Where no manager is appointed, all the partners shall have the status of managers. 83 December, 2024 December 2024

84. 5 . Share Company The code under Art 245 defines share company as follows:- A share company is a company whose capital is fixed in advance and divided in to shares and whose liabilities are met only by the assets of the company. The members shall be liable only to the extent of their shareholding . Formation of share companies  Share companies can be formed in two ways: - formation as between founders and formation by public subscription. When companies are to be formed by public subscription, an offer for subscription shall be made by a prospectus signed by all founders. The prospectus contains par values of shares, total shares issued, date and place of subscription and other details. Up on expiry of the time for making subscription founders shall call general meeting of subscribers that among other things, draw final text of memorandum of Association, verify fulfillment of formation formalities, make required appointments. After registration and publicity is made, the company acquires legal personality. In case of formation as between founders, share will not be offered for public subscription. Rather all shares will be allocated as between founders. Other procedures are similar. 84 December, 2024 December 2024

85. Cont’d….  A share company shall have a name. The company name shall be as agreed by members but shall neither offend public policy nor the rights of third parties. The company name shall be followed by the words ‘‘Share company ’’.  The capital of the company may not be less than 50,000 Ethiopian Birr. The amount of the par value of each share may not be less than 10 (ten) Ethiopian Birr . MOA of a Share company shall include: name of the company ; head office, and the branches; the names, nationality, and address of the shareholders, the number of shares which they have subscribed and paid-up ; the business purpose and sector of the company ; the amount of capital subscribed and paid-up; par value, number, form and classes of shares ; the name of shareholder who made contributions in kind, the price at which they are accepted and method of valuation, their object, and the number of shares allocated to him by way of exchange ; manner of distributing profits ; number of directors and managers and their powers; the number of auditors; period for which the company is to be established etc. 85 December, 2024 December 2024

86. Some peculiar features of share companies Limited liability - unlike partners in partnership, members in a share company as well as private limited company have limited liability. The concept of limited liability is that partners’ liability is limited only to the extent to their contribution made to the company. Partners cannot be personally liable for the debts of the company i.e. creditors of the company cannot proceed against personal property of share holders when the company’s asset are insufficient to pay of its debts. Hence, company debts can be paid only from the company’s asset and if it is insolvent, creditors will be losers. Issue shares-t he other important features of share companies is that their capital is divided into shares. Unlike partnerships share companies and of course private limited companies issue shares to their members. The partners in Share Company are called share holders. Shares are simply small units in to which the capital is divided into equal parts. 86 December, 2024 December 2024

87. Cont’d… Look at the following example: - United Bank is a Share Company established by public subscription. The bank has issued a total of 200,000 shares with par value of 1,000 birr. Can you know the total capital of the bank? The capital is calculated by multiplying numbers of shares by the value-of shares- 200,000x1000=200,000,000. Share companies issue share certificates that evidence the person is share holder and the number of shares he holds . Commercial business organization- unlike partnerships, share companies are always commercial business organizations This is also true for private limited company. Share companies cannot be established to undertake non-profit making activities or activities that cannot be regarded as trade activities. Minimum number of members and amount of capital- in order to form all other types of business organizations, the existence of at least two persons is sufficient. This is not however possible in case of share companies. At least five persons are required to form Share Company. 87 December, 2024 December 2024

88. Cont’d… Likewise the commercial code stipulates the minimum amount of capital needed to form Share Company. The minimum capital is 50,000 birr and the par value (individual share price) of shares cannot be less than 10 birr. 6. Private limited company (PLC) A private limited company is a business organization whose capital is fully paid-up in advance, divided up into shares and members are not liable for the debts and liabilities of the company so long as they have paid up their contributions . (art.495) Formation Private Limited Company can be formed by issue of shares. However, all the shares must be shared among the persons forming the company. That means, it cannot subscribe shares to the public to raise fund. That is principally because the individual personality of members is more important in cases of private limited company than share companies. Usually such kind of company is formed as between family members, relatives and friends who know each other very well. In order to form PLC, there must exist at least two persons. The law however limits the maximum number of members not to be more than 50. 88 December, 2024 December 2024

89. Cont’d…  The minimum capital of a private limited company may not be less than 15,000 Ethiopian Birr. The par value of each share may not be less than 10 Ethiopian Birr. All shares shall be of equal value. A private limited company may have a firm-name indicating the purpose of its business. The firm-name shall be followed by the words “Private Limited Company ”.  Where the number of members of a private limited company is reduced below two and another person does not join such company as a member within six months, the company shall be dissolved. MOA of a PLC includes: the names, nationality and addresses of the member or members ; the company name, head office, and branches; business purposes; amount of capital paid-up by each member ; the value of contributions in kind; number of shares held by each member ; procedure for distribution of profits ; number of directors and managers and their powers; number of auditors; the period of time for which the company is established ; etc. 89 December, 2024 December 2024

90. Cont’d… Important aspects of PLC  Generally , PLC, as they are companies, has similarity with share companies in many respects. Members of PLC have limited liability- only to extent of their initial contributions. PLC can also issue shares to their members. However the nature and class of shares in PLC are different from that of shares. PLC can only issue registered shares i.e. shares registered in the name of the member while share companies can issue both registered and bearer shares. PLC cannot also issue different classes of shares i.e. shares with different par value and preferential rights. PLCs, like share companies, can be established to carry out commercial activities. It cannot be established to perform non-profit making activities or activities reared as non-trading ones.  Finally , PLCs cannot venture into financial activities such as banking and insurance. The restriction is made to safeguard the interest of the public taking in to account the nature of the business itself. Banking and insurance business requires huge capital where as PLCs can be established with a minimum capital of 15,000 birr which is very negligible. 90 December, 2024 December 2024

91. 7. One Person Private Limited Company A one person private limited company is a business organization incorporated by the unilateral declaration of a single person . (art. 534 ) The company has legal personality separate and distinct from that of the member. The member shall not be personally liable for debts due by the company in so far as he has fully made his contribution (ar.534(3). But he hall be jointly and severally liable with the company if he intentionally commits unlawful act that jeopardizes the interest of the company or its creditors; merges assets of company with his properties; fails to separate his own legal personality from that of the company; uses assets of the company for his personal benefits or for the benefits of third parties and commits other similar acts (Art. 543) The capital of a one person private limited company shall not be less than 15,000 (fifteen thousand) Ethiopian Birr. The company is formed through a Unilateral Declaration (UD) . The unilateral declaration incorporating a one person private limited company shall be made before an authority entrusted with authentication of documents and entered into the commercial register. 91 December, 2024 December 2024

92. Cont’d… The UD of one person Private Limited Company shall indicate: that the company has only one member; name, nationality and address of the member; name of the nominee of the company who will act on behalf of the member in the event of death or absence or judicial interdiction of the member; the company name, head office, and branches; business purpose; amount of capital & (statement that capital is fully paid); valuation of contribution in kind; name and power of manager, name of auditor, period of time for which the company is established etc . A sole proprietorship may be converted into a one person private limited company. 2. The sole proprietor shall remain personally liable for all debts incurred prior to the formation of the one person private limited company through conversion . A one person private limited company may not establish another one person private limited company . A one person private limited company shall have a general manager who may or may not be the member of the company . 92 December, 2024 December 2024

93. Dissolution of business organizations Business organization may be dissolved due to various causes. The general grounds for dissolution are stated under article 181. Business organizations may be dissolved by operation of the law, by agreement or by court order. Partners may dissolve the business organization by agreement when the purpose of the business is achieved or cannot be achieved or when the term has expired. BOs can also be dissolved by court order for good cause on the request of a member or if a court declares the business organization bankrupt. When business organizations are dissolved, they have no more legal existence /personality and cannot perform any act of legal nature. Finally what comes is the process of liquidation and winding up of the remaining assets and liabilities of the organization. 93 December, 2024 December 2024

94. December, 2024 94 THANK YOU! STAY ALERT; STAY SAFE! December 2024