Business Law

By: Ana Hassen Aliyyi.

Assistant Lecturer of Laws in Haramaya University, Ethiopia.
Email: [email protected]
August 2024
Overview of Business Law course

Introducti Sale
on to Law Contract

Negotiable
Instruments
and Banking

Insuranc Law of
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• To bestow students with a foundational understanding of z law, including its definition,

features, relationship to morality, classifications, & z importance of business law.
• To equip students with an understanding of the definitions, distinctions, commencement,
end, acquisition, exercise, extinguishment, & attributes of legal personality, including z
differentiation between natural persons & artificial persons (juridical persons).
• To provide students with a comprehension of traders, business, and its elements, z
concept & types of BOs recognized under Ethiopian law, & z classification &
distinguishing features of partnerships & companies.
• To provide students with an understanding of z concept of obligations, including their
sources, & to define & explain contracts, their elements, distinctive features, defects,
effects, performance or non-performance, legal remedies for non-performance, & the
grounds for the extinction of contracts & their effects.
 Objectives of the Course
cont…
• To boost z students’ understanding of identifying & understanding
z specific laws governing z insurance industry in Ethiopia.
• To equip z students with the ability to differentiate commercial
documents, transferable securities, & documents of title to goods.
• To provide a comprehensive understanding to explain various
aspects of banking activities, including deposits, lending,
contracts, & other financial services.
• To equip z students with z comprehensive understanding of z
Ethiopian employment & labour laws and its specific characters.
 Introduction to Law

What is law?
• It is actually difficult to coin one objective (universal or conventional) definition
to it.
• Definitions given to the term law are as many as the available legal theories.
• According to the Black‟s Law Dictionary, ‘law’ in its generic sense, is a
body of rules of action or conduct prescribed by controlling authority,
having biding legal force. That which must be obeyed and followed by
citizen's subject at sanctions or legal consequences is a law.
• Law consists of rules of action or conduct. These rules are issued by an
authority. In addition, these rules have binding force and are obeyed
and followed by citizens.
 Cont…
• In ancient states, law was conceived as divinely
ordained set of rules of human action. Therefore, it
was believed to have a divine origin.
• For the sake of your business law :
“law is a bundle of rules (constitution, Proclamation,
Regulations or directives) enacted by the state (made by the
legislature(HPR,COM), interpreted by the judiciary (Courts))
and implemented by the executive (COM, police..) to govern
the behaviors of its members”.
 Basic Features of the Law
1. Generality

Law is a general rule of human conduct. Rules and regulations that constitute the law
of a country are general statements of possible human behavior.
• Laws do not specify the names of specific persons or behaviors.
• Legal rules are also said to be general because it is possible to apply a single rule to
a potentially unlimited number of cases.
• Moreover, legal rules are general because they are usually designed to apply for
indefinite period of time for the future.
• The impossibility to specifically specify every individual and every conduct could
also be a factor for the generality.
 Cont…
• Illustrations:
• 1. anyone directly addressing the victim, or referring to him, offends him in
his honor by insult or injury, or outrages him by gesture or in any other
manner, is punishable, upon complaint, with simple imprisonment not
exceeding three months, or fine not exceeding three hundred Birr. (Art 615
of the Criminal Code)
• 2. “Every person has the inviolable and inalienable right to life, the
security of person and liberty.” (Art 14 of the 1995 FDRE Constitution).
• Why General?
• Firstly, it promotes uniformity and equality before the law
• Secondly, it gives relative permanence to the law.
 2. Normativity
• A statement of the law is not a mere description of
things or facts. Law does not simply describe or explain
the human conduct.
• It is created with the intention to create and control
some norms in the society . It is interested in shaping
human behavior.
• Based on this feature, law can be classified as permissive,
directive, prohibitive and rewarding.
 A. Permissive Law
 They give right or option to their subjects whether
to act or not to act.
 Such laws usually use phrases like: has/have the
right to‟ or is/are permitted/allowed to‟ or shall
have the right‟ or shall be entitled to‟ or ‘’may‟ or
‘is/are free to”
 E.g.. 1. “Every person is free to think and to express his idea.”
(Art 14 of the 1960 Civil Code of Ethiopia).
 B. Directive law
• It directs or commands the subject to do the act provided in
the law. Obedience to such laws is not optional. (mandatory)
• Such laws usually use phrases or verbs like: ‘must’ or ‘shall’ or
‘has/have the obligation to’ or ‘is/are obliged to’ or ‘is/are
ordered to’ or ‘shall have
the obligation/duty’
• E.g.… “The debtor shall personally carry out his obligations
under the contract where this is essential to the creditor or
has been expressly agreed.” (Art 1740 (1) of the Civil Code of
Ethiopia.).
 C. Prohibitive law
• Prohibitive laws discourage the subject from doing the act required not
to be done.
• If the subject does the act against the prohibition, a sanction follows as
the consequence of the violation.
• usually use phrases like: ‘must not’ or ‘shall not’ or ‘should not’ or ‘no
one shall/should’ or ‘no person shall/should’ or ‘may not’ or ‘is/are not
permitted/allowed’ or ‘is/are prohibited’ or ‘is/are punishable’ and ‘is a
crime’.
• E.g.. “Any unmarried person who marries another he knows to be tied
by the bond of an existing marriage is punishable with simple
imprisonment.” (Art 650(2) of the 2004 Criminal Code of Eth).
 D. Rewarding Legal Norms
(rules)
 This are the kind of legal rules, which usually exempt
from observing the mandatory, prohibitive or permissive
norms or entitle a person to receive some benefits in
turn for the unusual activity that an individual
performed.
• E.g.. Art 84 (1) of the Income Tax Procl No. 286/2002:
“where a person provides information of tax evasion through
concealment, under reporting, fraud or any other improper means,
the informer shall be granted up to twenty percent of the amount of
the tax evaded at the time of the collection of the said tax”.
3.Law Regulates Social Behaviors
• Law essentially regulates relationship between human beings. Law
is concerned with the man to man relations. In other words, law is
not interested in the relation of man with machines or animals.
• If a single man was to live in absolute salutary in one of the
islands of Lake Tana, the law is unnecessary for him because
law is necessary only to regulate man-to man-relationship.
• Do you agree with this point?
• How do you see for example Art 777 of the Penal Code which prohibits
cruel treatment of animals or the law protecting the natural environment?
4. Law is intimately related with
the State
• The relation of state and law is such that it is impossible
to think the existence of one without the other. In fact we
can say that they are two sides of the same coin.
 5. Sanction
• Failure to comply with the law results in the infliction of
sanction.
• Each and every member of a society is required to follow
the law.
• Where there is violation of the law, sanction would follow.
 Functions of law

A. Maintaining Peace and Order

 The law is there to create peace and order by the threat
(sanction) of death, imprisonment and/or fine penalties.
B. Dispute settlement .
 Disputes/disagreements are unavoidable in the life of society and it
is the role of the law to settle disputes.
 C. Protection of society from
excessive gov’t power.
• The Government or its officials have every sort of power
that enables them to compel citizens.
• Human rights and freedoms are limitations on government
power. Administrative law also protects citizens from
maltreatment by administrative agencies.
 D. Means of Regulation of Social
Interaction
• Members of the society may have different social values,
various behaviors and interests.
• LAW inculcates socially acceptable social norms among
the members of the society.
 Other functions…
• Fighting Harmful Traditional Practices
• Protect and Encourage Innovative and New
Ideas(patent and copyright law)
• Law as a means of Social change
 Sources of law
• Where does the judge obtain the rules by which to decide cases?
Material sources

 Legislation
 Precedent
 Custom
 Religion
 International treaties
 Legislation
• Legislation is an intentionally created law by a certain law making body, having the
power to legislate.
• This law making body is given d/t names in different countries: in Ethiopia (HPR),
USA (congress), England (parliament), Russia (duma), Israel (Conset), Iran (Mejlis).
• How ever, other organs may also be involved in law making activities through
delegation of power. For example the council of Ministers in the Ethiopian
government may enact laws based on a delegated legislation.
• Legislation is of three main categories: constitution, Primary Legislation and
delegated Legislation.
 Precedent
• They are court decisions that are considered as laws.
• In USA, every decision of a court will be considered as a
law by every subordinate court.
• In Ethiopia, decisions of the Federal Supreme Court
Cassation Bench (FSCCB) are considered as a law by
every subordinate court.
 Custom
• Custom is an informal rule created by society through
frequent use and repetition.
• Custom is one of the oldest sources of law making.
• Custom is material source of law because the law derives
its contents from the custom
 International treaties
• These are agreements concluded as between or among
sovereign states. (e.g.. Algiers Treaty b/n ETH and ERT)
• Treaties may be multilateral or bilateral or regional or
Global.
• International agreements which are ratified by Ethiopia
have, by law, become part of Ethiopian law or are sources
of law for the country. (Art 9 (4) 13 (2) of the FDRE
Constitution).
 Other sources
• Doctrines
• Religious Rules
• Rules of Public Morality
 Classifications of Laws

• Public vs. Private

PUBLIC LAW
• Law which governs the relationship between individuals and the state.
(government official acting as a representative his public office vs. private individual).
E.g. criminal law, constitution
PRIVATE LAW
• It concerned with matters that affect the rights and duties of private individuals
amongst themselves.
• It is intended to give compensation to person injured, to enable property to be
recovered from wrongdoers, and to enforce obligations. E.g. family law, commercial law
 International vs. national

• NATIONAL (MUNICIPAL) LAW

- Also known as domestic law. It refers to the set of laws applied
within a nation state.
- Different in each country. It is also known as law of the land. It is in
effect in a country and applicable to its members.
• INTERNATIONAL LAW/law of the states
- Body of law which is composed for its greater part of the principles and
rules of conduct which states feel themselves bound to observe, and
consequently commonly do observe, in their relation with each other.
 Civil vs. Criminal Law
• CRIMINAL LAW
- Offences are considered to be committed against the state
- The criminal offender is prosecuted by the Public Prosecutor.
- Punishments: Fine, death sentence, whipping, imprisonment.
- Public prosecutor vs. defendant
- Its part of public law
• CIVIL LAW
- It concerned with the right and duties of individuals towards each other. Plaintiff / Claimant v
Defendant
- Remedy: Damages, injunction, rectification, specific performance.
- Its part of private law
 Substantive vs. Procedural Law
• SUBSTANTIVE LAW
- It enumerates our rights, duties, liberties and powers
• PROCEDURAL LAW
- Also called ‘‘law in action‟ as it governs the process of
litigation.
- It provides the process/procedures that can be used to
enforcements of rights and duties in court.
 Hierarchy of laws
• Hierarchy of laws is a system in which all the laws of a
certain country are put at various levels or ranks
according to their order of importance.
• The order of importance of laws is very much related to
the order of importance of state organs that make laws.
• Hierarchy of laws is “a chain of subordination” between
laws.
 Cont….
• All laws (proclamations) made by the HPR are second to the Constitution.
• Other laws enacted by subordinate bodies of the Federal State (such as
regulations and then directives) are inferior to the proclamations, except
decrees enacted by the Council of Ministers in case of emergency.
• Such decrees may be promulgated as emergency proclamation where the HPR
approves them.
• Regarding the regional states, State Constitutions are superior in hierarchy.
• Regions have the power to enact emergency decrees where the State Council is not
in session.
• NB. There is no hierarchy between federal and state laws since both have the
autonomy to issues laws in their respective matters.
 Legal Personality
Definition: Persons
• Z word ‘person’ traces its roots from the Latin ‘persona’ which in its ancient usage of the theatre
meant z mask which covers the figure of z actor.” Z mask indicated z role that z actor played, & z
audience in effect “recognized z character as soon as it saw the mask.
• Under earlier legal systems, human beings who took part in juridical relations were regarded as
persons while those who couldn't perform juridical acts were considered as lacking legal personality.
• At present, application of z term ‘person’ has gone beyond z sphere of legal entities under municipal
laws, & it also applies to entities that have international legal personality.
• Z words “human being” and “person” are not interchangeable. All human beings in modern legal
systems are persons, & take part in legal relationships as subjects of rights and duties.
• Z phrase “subject of rights” (used in Art 1 of the Ethiopian Civ C) obviously implies corresponding
duties as well, because z rights of any person apparently impose a reciprocal duty on others to
observe these rights.
 Cont…
Commencement of physical personality
• “The human person is subject of rights from its birth to its death”
• The words “human person” (under Art 1) refers to anyone who is member of mankind; i.e. to anyone who has the
distinct features of a human being.
• Deformities and handicaps are acceptable as long as they are the sorts that could occur through various natural or
other misfortunes.
• Physical personality begins from birth and lasts until death.
Birth
• Blacks 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 mothers 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.
 Cont….
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.
• Z 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 z law is clear.
 Anticipated personality:
Conception and viability
• There are instances where z interest of a conceived child is put at stake if personality is attributed only
after birth.
• A case in point is z inheritance right of a child whose father has died before he is born, as envisaged
under Art 834.
• Similarly, z 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. Art 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 z 300th day preceding its birth (Art 3).
• A conceived child may acquire personality while he is still in his mother's womb provided that:
• His interest so requires, particularly where z interest of a conceived child requires that he be called for
succession (Art 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).
 Cont….
• Viability clearly includes z condition of being born alive. Yet, Art 2 distinctly states
z requirements of being born alive & viable, most likely because in z case of a
stillborn child, z condition of being born alive is not met; & in effect, z issue of
viability doesn't arise. If on z other hand, z child who had acquired personality
during conception is stillborn, or is born alive but not viable, z personality that was
conditionally acquired during its conception is of no effect.
• Viability is presumed where a child lives for 48 (Forty eight) hours after its birth
(Art 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 z
child's death.
INDIVIDUALIZING AND LOCATING
PHYSICAL PERSONS
Name
• Names have z purpose of identifying individual physical persons.
• They are among z attributes of physical personality.
• Z FDRE Constitution considers name as z right of every child.
• Art 36/1(b) of the Constitution provides that “Every child has z right to a name & nationality.”
• a) Principle:
• According to Art 32, every individual has a family name, one or more first names & a patronymic; &
they are written in that order in administrative documents.
• b) Current practice:
• Family names indicate members of a common male-line descent, thereby reducing identity of names.
• However, family names haven't yet been introduced decades after z promulgation of the Civ C.
• Z provisions of the Civil Code on family name haven't been able to alter the Ethiopian tradition of using
first names followed by z fathers first name (patronymic),
 Family name:
• A person born after the promulgation of the Civ C of 1960 takes the father's family
name. If the father doesn't have a family name, z child shall take his fathers first
name (patronymic) as his family name. (Arts 33/1, 36, 3359/2) Art 3358
• A child whose father is unknown or a disowned child (Art 33/2) shall have z family
name of his other. Z same rule applies where paternity of z child is judicially
declared (Art 33/3).
• Z manner as to how a person's family name is determined is stipulated in Arts
3358 to 3360, according to which z patronymic, i.e. - z first name of z father (or the
patronymic of a senior male ascendant) is taken as family name.
• Family names of married women & adopted children are determined pursuant to
Arts 40 & 41 respectively.
 Cont…
• Choice of first names
• According to Arts 34 and 35 of the Civ C, first name is chosen by the father, or, in his default, by the
family of the father. This clearly reflects the traditional male supremacy in one of its absurdly extremist
manifestations. The mother of the child has been put on the third rank in choosing the name of the child
ranking after the father and the family of the father, while she deserves an equal status in this regard.
• It is only additional first names (Art 34/2) that are chosen by the mother, or, in her default, by the family
of the mother.
• e) Forbidden first names (Art. 38)
• A person cannot have the first name of the father, mother, brother or sister.
• f) Patronymic (Art 36):
• The usual first name of the father is a person's patronymic.
• First name and family name will be used (without patronymic) where father is unknown, or
where patronymic and family name are identical.
 Cont…
• g) Change of names:
• Change of family name may be authorized by court (42) where it is applied for good cause and if such
change is not prejudicial to third persons.
• Change of first name (43) can be authorized by court upon application. Unlike change of family name, z
condition of good cause or another restriction has not been attached to change of first names.
• h) Abuse of name
• Z fulfillment of z cumulative elements embodied under Art 45 constitutes abuse of name. These elements
are:
• using one's own name
• in z exercise of occupational or professional activity
• with z object or effect of causing prejudice
• by harmful confusion
• to z credit or reputation
• Of a third person.
 Cont…
i) Usurpation of name:
• A person may resist the usurpation of his name (46/1) by another person where such
usurpation causes or is likely to cause material or moral damage.
2. Residence and Domicile
• In addition to identifying persons by name, persons should also be individually located.
• Citizenship, domicile and residence identify the location of persons for z purpose of legal
transactions.
• Citizenship denotes z moral, social & political tie of a person to a State.
• Z State is an entity with an international personality (i.e. - recognition as a result of having
defined territory, a relatively stable population, government and sovereignty).
• Persons owe allegiance to z State, which in return protects their rights within the framework
of peace, order, freedom, social harmony & sustained development.
 Cont….
Domicile defines a person's legal tie to a place that has its systems of law. A person can have
only one domicile at a time.
• New domicile is acquired where a person establishes his residence in a new country with z
intention to live there (animus manendi). Such a person may acquire new domicile without
changing his citizenship. A person may be an Ethiopian or a foreigner with regard to
nationality or citizenship, & can have Addis Ababa as his domicile.
• Residence is more specific & links a person to z particular place where he normally resides.
2.1- Residence
• Z residence of a person is z place where he normally resides Art 174).
• Z determination of residence is essential for z purposes of marriage (597 CC., Art. 22 of z
RFC), successions (826), contracts (1755/2) & summons (Art.106 of z Civ PC). It is also
essential during elections, for taxation & other purposes.
 Residence vs mere sojourn
• Residence is different from a mere sojourn in a certain place for some days or weeks.
• Thus mere sojourn in a place doesn't constitute residence (175/1). Yet, residence is
acquired if a person's sojourn is to last or actually lasts for the period stated under
Art 175.
• If a person: intends to stay at a place (i.e.- at a sojourn) for more than three months,
or,
• Actually stays in such sojourn for more than three months without a prior intention of
staying that long, he acquires residence (175/2) in such place.
• It should be noted that a sojourn which is intended to last for more than three months
is considered as residence from the moment the person starts living in the sojourn
provided that he intends to stay there beyond three months.
 Principal and secondary
residence
• A person may have several residences (177), & in such cases one of them shall be
considered as “principal residence” owing to the criteria of normality, frequency
and the length of time that a person relatively stays in one of the residences.
• Z issue whether a person's presence in a particular residence is normally more
predictable than that of other residence(s), and how frequently & how long he
lives in that particular place are z factors we may consider when two or more
residences seem to have z characteristics of principal residence.
Stipulated residence
• Residence may be stipulated for the purpose of a specific relationship, business or
activity (181).
• Agreement of the person in whose favor the stipulation is made is mandatory (182).
 Residence determined by law
• Persons without proved residence: “The place where such person is shall be deemed to
be his residence” (176) because a person has to have at least one residence.
• Married couple, minors and judicially interdicted persons: Married couple shall live
together in their conjugal residence (Art 640/1 of the Civ C and Arts 53 and 54 of the RFC).
• In addition to the conjugal residence, a married woman may have her own residence
(178/1).
• Minors and interdicted persons may have residence of their own other than the one (178/2)
determined by the guardian for the minor (265) or the interdicted person (Art.362).
• Public officials and traders: The place where a public official exercises his functions is
considered as his residence (179), and the place where a person carries on trade shall be
deemed to be the residence of the trader (180).
 Special rules of residence
• For the purpose of marriage, elections and taxation, the law requires longer periods of residence owing to the fact
that a minimum of six months have been considered to be necessary.
• A spouse need not be resident of the place where his/her marriage is to be registered if his/her parents or close
relatives are residents of the place for over six months.
2.2- Domicile
• Art 183 defines domicile as “the place where such person has established the principal seat of his business and of his
interest, with the intention of living there permanently”.
• Principal seat of business refers to the place where occupational activities are carried out.
• Permanent intention to reside in a certain place is presumed “where a person has his normal residence in such
place”. (184/1)
• The issue of domicile arises when conflict of laws require the determination of the legal system that must be
applicable.
• A person can have only one domicile at a time (186).
• Where a person's place of work differs from the place where he has his family and social life, the latter shall be
deemed to be his domicile (185).
 Change of domicile
• The locality of a person's previous domicile shall be retained until he establishes a domicile
in another place (187). The term “locality” in Art 187 implies a wider concept than a
specific residence at a particular “place”.
Domicile determined by law
• Persons whose last domicile is unknown (Art. 188) shall be deemed to have domicile at their
normal residence; or, in default of normal residence at their ordinary residence; or,
• In default of residence, where a person is shall be deemed to be the place of domicile.
• Married couple (189) shall have the same domicile. If a married woman's husband is not
capable then the women may have her own domicile.
• A minor who is not emancipated (190) shall have the domicile of his guardian.
• The place where the interdicted person was at the time of his interdiction (191) shall be
considered as his domicile.
 - RIGHTS HELD BY PHYSICAL
PERSONS
• Black's law dictionary defines right as “a legally enforceable claim that another will do or will
not do a given act; a recognized and protected interest the violation of which is wrong.” The
phrase “legally enforceable claim” indicates that there should be a claim or legal guarantee
that is enforceable by courts of law and law enforcement organs.
• The legal guarantee may require another person ‘not to do a given act’ (i.e. negative rights)
such as the inviolability of domicile; or, it may require ‘a duty to do a given act’ (i.e. positive
rights) such as the duty to supply maintenance (Arts 197 to 212 of the RFC). Positive rights
involve duty to act, and a negative right requires the duty to forbearance.
• Social, economic and cultural rights require the duty to act towards making the rights
available. They are thus positive rights.
• There are rights which are recognized by law, and their non-violation is legally guaranteed
and enforceable. Civil and political rights usually belong to this category and the law
guarantees non-intervention when a person exercises these rights.
 Cont…
• Rights of personality and constitutional liberties
• Rights of personality are held as of birth (Art. 1), although legally
binding acts (e.g. contracts) are exercised through a person who
is in charge of administering the property of the person with
lessened capacity (192-393).
• Holding rights refers to entitlement which may at times require
exercising it through a guardian or a tutor.
• Arts 8 to 31 of the Civ C deal with rights of personality; i.e. -
rights of every individual by virtue of physical personality.
 Cont….
• Art 8 provides “Every physical person shall enjoy the rights of personality and the liberties guaranteed by the FDRE
Constitution” without regard to race, color, religion or sex.
• Art 25 of the Constitution articulates the principle of equality before the law and entitlement without any discrimination
to equal protection of the law. This principle includes foreigners because they are not precluded from this principle of
equality in all matters (389/1) other than the few specifically identified juridical acts they are not capable of exercising,
such as participation in government (389/2) and ownership of immovable property without government permit (390).
• Art 14 of the constitution lays down the principle that “Every person has the inviolable and inalienable right to life, the
security of the person and liberty.” These rights i.e. life (Art. 15), security of the person (Art. 16) and liberty (Art. 17)’
are further substantiated by other constitutional rights, namely: the right to protection against cruel, inhuman and
degrading treatment (Art. 18), the rights of arrested persons (Art. 19), rights of accused persons (Art. 20), rights of
persons held in custody and convicted prisoners (Art. 21), the right against retroactive application of criminal law (Art.
22) and the right against double jeopardy (Art. 23), right to honor and reputation (Art. 24), right to equality (Art. 25),
right to privacy (Art. 26), freedom of religion, belief and opinion (Art. 27).
• Art 93/4 (c) of the Constitution enumerates the provisions that cannot be suspended nor restricted even at times of a
state of emergency. These provisions are Art 1 (nomenclature of the State), Art 18 (freedom from cruel, inhuman or
degrading treatment), Art 25 (the rights to equality before the law without discrimination) and Art 39 Sub-Arts 1 and 2
(rights of self-determination).
 International Covenant on Civil
and Political Rights
• Art 9/4 of the Constitution recognizes all international agreements ratified by Ethiopia as “an integral part of the law of the
land.”
• Art 13/2 of the Constitution further provides that the fundamental rights and freedoms specified in Chapter III of the
Constitution (i.e. Arts 13 to 44) “shall be interpreted in a manner conforming to the principles of the Universal Declaration
of Human Rights, International Covenants on Human Rights and international instruments adopted by Ethiopia.”
• It suffices to say that in addition to our domestic laws and the Constitution, international instruments ratified by Ethiopia
shall be relevant with regard to rights of personality.
• The 1966 ICCPR, in particular, has many provisions relevant to rights of personality. Part III of the Covenant (Arts 6 to 27)
embodies the following rights:
• right to life (Article 6), freedom from torture, or inhuman and degrading treatment (Art. 7),
• freedom from slavery and slave trade in all their forms, servitude and forced labor (Art. 8),
• right to liberty and security of the person, freedom from arbitrary arrest and detention (Art. 9),
• right of detained and accused persons to be treated with humanity (Art. 10),
• freedom from imprisonment merely on the ground of failure to fulfill contractual obligation (Art. 11),
• liberty of movement and freedom to choose residence, freedom to leave any country including one's own and freedom to
return to one's own country (Art. 12),
 Cont….
• the freedom of aliens against expulsion (Art. 13) except for compelling reasons,
• right to equality before the law (Art. 14), and freedom from retroactive application of criminal law (Art. 15),
• right to recognition as a person (Art. 16),
• right to privacy of family, home and correspondence, and protection from against such interference and unlawful attacks on
honor and reputation (Art.17),
• right to freedom of thought, conscience and religion (Art. 18), and freedom of speech and expression (Art. 19),
• freedom from any propaganda towards war, discrimination or hatred (national, racial, religious) Art. 20,
• right to peaceful assembly (Art. 21) and freedom of association with others (Art. 22),
• right to marry, found a family and the equality of rights and responsibilities of spouses (Art. 23),
• right to every child to protection by his family, society and the State (Art.24/1), and acquire name (Art. 24/2) and nationality (Art.
24/3),
• right and opportunity to take part in the conduct of public affairs (Art. 25/a), right to vote and right to be elected (Art. 25/b), and
the right to have access to equal public service in one's country (Art. 25/c),
• right to equality before the law and equal protection of the law (Art. 26),
• the right of members of minorities to practice their culture, to profess and practice own religion, or use their own language (Art.
27).
 - Rights of personality under
the Civil Code
• Rights of personality and constitutional liberties are extra-commercium; i.e. - they
are not subject to legal transactions (Art. (9/1).
• Moreover, “voluntary limitation imposed on the exercise of such rights and liberties
shall be of no effect unless it is justified by a legitimate interest” (9/2). This provision
has the purpose of protecting persons from their own harmful decisions and acts.
• “Legitimate interest” is referred to as “les lois et l’ordre public” (law and public
order) in the French master text.
• In addition to the enumeration of rights of personality and constitutional liberties,
the law further avails remedies in case of violation of these rights.
• A person may demand the cessation of any unlawful molestation and is entitled
to seek damages under extra-contractual liability (Art.10).
 Cont…
• The rights of personality embodied in Art 11 to 31 are:
• Rights concerning the body (Arts 18-22, 25, 26)
• Rights concerning privacy (Art 11, 13, 27 to 31)
• Freedom of action, thought, religion, silence, etc. (Art 11, 12, 14 to17, 23, 24).
• Rights concerning the body
• These rights protect the integrity of the human body during a person's lifetime (both against others and against himself) and also safeguard the body after
death.
• According to Art 18/1, “The act by which a person disposes of the whole or a part of his body shall be of no effect where such act is to be carried out
before (his) death (and) if such act (causes) a serious injury to the integrity of the human body.” The exception to this rule is an act accepted by medical
practice (18/2).
• Promise for the disposition of one's body in whole or in part before or after death is revocable (Art, 19/1).
• A person may refuse to submit himself to a medical or surgical examination or treatment (20/1). The two exceptions are:
• Laws or regulations providing for physical examinations, compulsory vaccination or similar measures in the public interest (20/2);
• The power of the guardian to submit a minor or interdicted person to an examination or treatment beneficial to the incapacitated person's health (20/3).
• The following are effects of refusal to submit to examination and treatment that do not involve any abnormal or serious risk:
• The person “forfeits the right to avail himself of the illness or infirmity which the treatment could have prevented, eliminated or lessened.” (21) A case in
point is the forfeiture of the right to seek damages for physical injury while the subsequent damage could have been averted by treatment which the victim
refused to undergo.
• The court may consider as established the facts which the examination was meant to ascertain (22). For example, a person charged of knowingly
transmitting
 Cont….
• AIDS to a woman may refuse to submit to examination. However, the Court can consider the status of the accused as AIDS
Positive.
• A person who has the capacity to make a will (i.e. - including a minor over 15 years of age –Art. 308) has the right to
prescribe the conditions of his funeral (Art.25). In case, however, the deceased has left no prescriptions, the spouse or
relatives may prescribe conditions of the funeral (Art. 26).
3.2- Rights concerning privacy
• Protect persons against illegal searches and secure the inviolability of a person’s dwelling place and correspondence.
Rights of privacy also include a person’s rights against public exhibition, reproduction and sale of his photograph or image.
a) The right against illegal searches
• By virtue of Art 11, no person shall be subjected to search except as provided by law.
• Arts 32 and 33 of the Crim PC regulate searches on the person himself or his premises.
b) The inviolability of domicile
• “No one may enter the domicile of another person against the will of such person; neither may a search be effected therein
except in the cases provided by law” (Art 13/2).
• The term “domicile” under Art 13 should impliedly include residence.
 Cont…
c) Inviolability of correspondence
• The contents of a confidential letter shall not be divulged without the consent of the author (31/1).
• The two exceptions are: first, it may be produced in judicial proceedings; and secondly, it can be produced where the
addressee has legitimate interest (31/2).
• The term “confidential” seems to include all letters that are in closed envelope even if they are not marked confidential.
Violation of privacy of correspondence by a person to whom it is not addressed (i.e.- an act of deliberately opening a closed
letter or envelope that encloses “correspondence, telegrams, business papers or private communications, or a packet,
parcel or consignment of any kind ”) is punishable under Art 606 of the Criminal Code.
d) Inviolability of a person’s image
• Art 27 stipulates that “The photograph or image of a person may not be exhibited in a public place, reproduced, nor offered
for sale without the consent of such person.”
• Exception with regard to reproduction (Art 28): Consent of the person is not required if reproduction is justified by:
• notoriety of such person,
• public office,
• requirements of justice or the police, or,
• facts, events or ceremonies (that are) of public interest or which have taken place in public.
 Cont….
• Sanctions against exhibition or sale without consent (Art 29):
• Except for the exceptions allowed under Art 28, a person whose image
is exhibited or offered for sale without his consent may demand that
such acts be stopped.
• Damages (29/2) may be awarded. & moral damages (29/3) may also be
awarded if the act doesn't cease immediately when cessation is
demanded.
• The spouse, or in default, the relatives stated in Art 30/2 can invoke the
sanctions under Art 29 if the exhibition or offer for sale of image is
prejudicial to the honor and reputation of a deceased person.
3.3- Freedom of action, thought, religion...
• Every person is free to exercise any activity which he deems proper to his calling (i.e.- occupation) or leisure provided that the
rights of others , morality and the law are respected (Art. 16). A typical example with regard to respect for the rights of others is
the right of a spouse who may “in the interest of the household, object to the carrying on of a given occupation or activity” (Art
645).
• Another general principle in addition to the one embodied in Art 16 is the non-restriction of freedom except in cases provided by
law (Art11).
a) Freedom of residence
• The right to freely establish one’s residence wherever it is suitable and change the place of such residence is embodied in Art 12/1.
• Any undertaking to reside in a particular place is void (12/2). And, “the undertaking of a person not to reside in or not to go to a
particular place shall be of no effect” (12/3) unless it is justified by legitimate interest.
b) Freedom of thought
• Art 14 stipulates the freedom to think and express ideas (14/1) subject to the restrictions in respect for the rights of others,
morality and the law (14/2).
c) Freedom of religion
 The exercise of religion is respected (15) provided that such rites are not utilized for political purposes or (are) not prejudicial to
public order or morality.
 Cont…
d) Marriage and divorce
• The undertaking not to marry, not to remarry, to divorce or not to divorce is void (17),
and this provision aims at protecting a person against his own acts that unduly restrict
his rights.
e) The Right to keep silent
• “Any admission or manifestation of the will obtained by methods causing molestation to
the personality shall be of no effect” (Art. 23).
f) Professional secrecy
• The right to professional secrecy is respected (24/1) if revealing such facts is betrayal of
the confidence placed in a person by virtue of his profession. However, professional
secrecy cannot be invoked against the duty to report offences against the State and the
Armed Forces as required under Arts 254 and 335 of the Criminal Code.
 LESSENED CAPACITY
1. Capacity to exercise rights and duties
a) Capacity is the rule and incapacity the exception
• Art 192 provides that “Every physical person is capable of performing all acts of civil life unless he is declared incapable by the
law”.
• In other words, everyone has the capacity to exercise the rights he holds unless he is within the group of persons whom the law
declares incapable of performing juridical acts on their own, i.e.- without being represented by a guardian or a tutor.
b) Capacity is presumed unless proved otherwise
• A person's capacity to exercise juridical acts is presumed (196/1), and anyone who invokes the issue of incapacity bears the burden of
proof (196/2).
c) The deprivation in the exercise of rights is not absolute
• The words “unless he is declared incapable by the law” under Art 192 do not denote absolute incapacity or total disability to perform
any act of civil life.
• The capacity to exercise rights is lessened under certain circumstances; and the entitlement to these rights is not completely
deprived.
d) The prohibition of renunciation and voluntary restriction of rights
• The exercise of rights cannot be renounced (195/1). And, a voluntary limitation in the exercise (enjoyment) of rights is void “unless it
is justified by lawful interest” (195/2).
 1.2- Categories of lessened
capacity
• Due to mental or physical condition:
• Special incapacity (Art. 194)
• Due to special functions, e.g. Art. 302
• Notorious insanity and apparent infirmity (Arts. 339-350)
• Judicial interdiction (351-379)
• Due to penal sentences: Legal interdiction Arts 380-388 (E.g. Art 123, Criminal Code, 2004)
• Due to foreign nationality (Arts. 389-393)
• Due to age: Minority (Arts.198-338 C.C; Arts 215-318 RFC)
• General incapacity (Art. 193)
• Foreigners are classified under “special incapacity” because they are capable of performing all
juridical act other than few (specifically identified) juridical acts that they are not capable of
exercising.
 Cont…
• Special functions may also entail special incapacity. For example, according to Art 289 of the RFC, a tutor can't conclude
contract with the minor, nor can he accept the assignment of any right or claim against the minor, unless he is authorized by
court
1.3- Purposes of lessened capacity
• the direct exercise of certain juridical acts (such as legally binding contracts) requires a certain level of maturity, mental
condition and the like.
• The law duly lessens such rights of certain groups of persons on the basis of their status of minority, notorious insanity,
apparent infirmity, judicial interdiction and legal interdiction for the following reasons:
• To protect incapacitated persons from others who may take advantage of their inexperience, inferior judgment, etc.; and to
protect these persons of lessened capacity from their own erroneous decisions and acts that could be detrimental to their
interests.
• In the case of legal interdiction, the incapacity has the purpose of protecting society from offenders.
Minority
• A minor is a person of either sex, who is below eighteen years of age (Art. 215 - RFC), and minority starts from the beginning of
physical personality.
• A minor cannot perform juridical acts (i.e.-acts that entail legal consequences) “except in cases provided by law” (216/3- RFC).
 Cont….
Juridical acts that can be performed by minors
• The juridical acts that minors can perform are stipulated under Arts 242, 263, 264, 134/1, 140/2, 140/3,
291,292,293 and 295 of the RFC.
a) Guardianship and tutorship
• A minor can be a guardian or tutor of his own children (Art.242 -RFC).This provision applies to cases where a
minor happens to be a parent outside wedlock, because marriage (upon dispensation of not more than two years
–Art 7/2, RFC) emancipates a person from minority (Art. 311 – RFC).
b) Receiving income from work
• From the age of fourteen onwards, the minor himself shall receive the income deriving from his work (Art. 263/1 -
RFC). By virtue of Article 263/2 (RFC), the minor “may freely dispose of such income in accordance with the law,
after making contribution to his own maintenance.”
c) Receiving income from donated or bequeathed property
• A minor may receive income from property donated or bequeathed if the person who donates, bequeaths or leaves
the property orders that the minor and not his guardian receive and use the income. The contract of donation or
will can also enable the minor to administer and use such income (Art. 264 -RFC).
 Cont…
d) Acknowledging a child
• A minor shall personally make declaration to acknowledge that he is the father of a child (Art. 134/1 -
RFC). Where the acknowledgment is made without the guardians authorization, the minor can revoke
such acknowledgment as long as he is a minor and within one year following his attainment of majority
(140/2 -RFC). Such right of revocation can only be exercised by the minor himself and not by his
representatives or heirs (Art. 140/3 –RFC).
e) Acts of everyday life
• The tutor may expressly (292/1 -RFC) or tacitly (292/2 -RFC) authorize the minor to conclude contracts,
“which considering his age and his financial position, are to be regarded as acts of everyday life”. Art 293
(RFC) defines acts of everyday life as acts, which do not require authorization of the court (293/1 –RFC)
or acts that entail expense or obligation whose value does not exceed three hundred Birr (293/2 –RFC).
• Acts such as loan (Art. 290 -RFC), lease (284 -RFC), and compromise involving an amount more than one
thousand Birr (Art. 288 -RFC) cannot be performed by the tutor without the authorization of the court.
And the tutor cannot thus authorize the minor to perform such acts.
 Cont….
f) Will, marriage and being adopted:
• A minor is entitled to make a will on his own as of his attainment of sixteen years (Art. 295/2 -RFC).
• A minor over sixteen years who is allowed to marry according to Art 7/2 (RFC), is entitled to give his consent
because Art. 6 (RFC) applies regardless of age.
• Opinion of the child may be considered before the court approves the agreement of adoption (Art. 194/3/a -RFC).
g) Other juridical acts:
• A minor has the right to bring an action in court as stipulated under Arts 300, 160/1 and 161/1 of the RFC.
Moreover, the tutor shall consult the minor (aged fourteen or above) in all important acts concerning him
(Art.291/1 -RFC).
2.3- Sanctions against the acts of a minor performed in excess of his powers
• Juridical acts of a minor performed within the limits of his power are valid and binding. Minority can't thus be
invoked to invalidate such acts.
• The issue of invalidation arises only where the minor acts in excess of his powers.
• Art 299 (RFC) provides that “The juridical acts performed by a minor in excess of his powers shall be of no effect”.
 Cont….
• Juridical acts of a minor (that are beyond his powers) voidable, i.e.- capable of being invalidated, only upon the request of the minor,
his heirs or representatives. However, request for invalidation (on the ground of incapacity) cannot be made by the party who has
contracted with the minor nor any other party other than those stated under Art 300 (RFC).
• The contract remains valid unless the minor, his heirs or representatives apply for invalidation.
a) Exceptions where contracts with minors are not invalidated
• Acts of everyday life shall remain valid “ where the other contracting party could in good faith believe that the minor had received the
authorization to conclude them and has not taken advantage of the inexperience of the minor" (Art 301/1 -RFC).
• Payment made to a minor remains valid “to the extent of the enrichment which remains to his benefit on the day when the action of
invalidation is instituted” (Art. 302/1 -RFC). Or else, the payment is null, subject to the minor's duty to make repayment (302/2 –RFC).
b) Reinstatement, extra-contractual-liability and damages
• Invalidation of contracts inevitably entails reinstatement (1815/1).
• By virtue of Art 303 (RFC), the provisions relating to extra-contractual liability (2027-2161) and unlawful enrichment (2162-2178) shall
apply to minors as well.
• The father, the mother, the person in charge of the minor, etc. (Arts, 2124, 2125) shall be liable under the law where the minor child
incurs an extra- contractual liability.
• It must be noted that mere false statement of the minor that he is a major doesn't deprive him of his legal protection (Art. 304/1 -RFC).
Nor does such a statement constitute fault (304/2 -RFC) entailing extra contractual liability.
 Cont…
• Termination of minority
• By virtue of Art 310 (RFC), the lessened capacity of the minor shall cease upon his attainment of majority (i.e. –eighteen years) or
upon being emancipated. And, pursuant to Arts 311 to 314 (RFC), emancipation of a minor results from marriage or explicit
emancipation.
a) Emancipation due to marriage
• Art 7/1 of the RFC prohibits both genders from concluding marriage before the attainment of the full age of eighteen years. As
exception to this stipulation, Art 7/2 (RFC) enables the Minister of Justice to grant dispensation of not more than two years upon the
application of future spouses, or the parents or guardian of one of them, for serious cause.
b) Explicit emancipation
• Art 312/1 of the RFC allows the guardian or tutor of a minor or any interested party to apply to court for the emancipation of a minor
who has attained the age of fourteen years. The court may emancipate the minor after considering the factors stated under Art 312/2
of the RFC.
c) Effects and irrevocability of emancipation
• An emancipated minor is deemed to have attained majority (Art.313 - RFC). And the emancipation of the minor cannot be revoked
(314/1 - RFC) despite the dissolution of the marriage (314/2 -RFC).
• The only exception where a court may revoke a minor's emancipation (Art. 314/3 - RFC) is where it has pronounced the dissolution of
the marriage on the ground that one of the spouses (or both) had not attained the age prescribed by law for marriage.
 Insane and infirm persons
Insane and infirm persons
• Insanity that is not notorious
• According to Art 339/1, an insane person is one:
• who cannot understand the importance of his actions
• As a result of being insufficiently developed (i.e. - retarded development, mental disease or senility).
• In appropriate cases, persons who are feeble-minded, alcoholics, persons who are habitually intoxicated and
prodigals shall be entitled to the protection given to insane persons (339/2).
• Juridical acts performed by an insane person are not invalidated on mere grounds of insanity unless the insanity is
notorious (347/1, 341, 342). Yet, the insane person can invoke defects in consent (1696-1710) on account of his
insanity (347/2). This remedy can be invoked only by the insane person himself and not by his heirs or his creditors
(348).
• There are two exceptions (Art. 349) where heirs or creditors may invoke defects in consent on account of insanity,
namely:
 where the terms of the contract clearly reveal insanity (349/1), or,
 Where the judicial interdiction of the person has been demanded.
 Notorious insanity and
apparent infirmity
• Legal protection is given to a person whose insanity is notorious (publicly known) or whose infirmity is evident (343).
Notorious insanity
• A person is notoriously insane where:
• he is an inmate of a hospital or an institution for insane persons or nursing home by reason of his mental condition (339)
• For the period for which he remains an inmate.
• The three cumulative elements of the definition are being an inmate, the mental condition of the person and the duration
of the legal protection.
• In rural communities of less than two thousand inhabitants the insanity of a person shall be deemed notorious, where his family
or those with whom he lives watch over him and restrict his liberty of movement due to his mental condition (342). The figure
two thousand is merely meant to indicate communities where the inhabitants have a relatively closer relationship that enables
them to know the mental condition of an insane person (346/2) who lives in their commune or in an adjacent commune.
Apparent infirmity
• The Civil Code defines infirmity under Art 340, according to which, an infirm is deaf-mute, blind, etc. who as a result of his
condition can't take care of himself or administer his property.
• Infirm persons are given legal protection only where they “invoke in their favor the provisions of the law which afford protection
to those who are insane” (340).In other words, an infirm person is not availed with the protection unless he demands for it.
Juridical acts of notoriously insane
and apparently infirm persons
• Juridical acts performed by a notoriously insane (343/1) or apparently infirm (343/2) person may be invalidated upon the request
of that person, his representatives or his heirs.
• Their acts are subject to invalidation (344) on mere ground of notorious insanity or apparent infirmity.
• Parties who had in good faith concluded contracts with notoriously insane or apparently infirm persons are entitled to damages
caused by the invalidation (345, 346).
• The notoriously insane person is extra-contractually liable (2027-2161) and is bound by obligations resulting from unlawful
enrichment (2162-2178) as though they were of a sound mind (350).
Judicial interdiction
• Notorious insanity only lasts for the period during which the person is an inmate of a hospital, an institution for insane persons
or a nursing home by reason of his mental condition.
• The best means of securing adequate and sustained legal protection for insane and infirm persons is thus through judicial
interdiction i.e. the withdrawal of the capacity to perform juridical acts in order to protect the interest of the interdicted person
and his presumptive heirs.
Examination of the application
• The court is required to see the person whose interdiction is applied for (354/2), and where his personal appearance is
impossible, the court may have the condition of the insane person examined by delegating one of its members or by appointing
an expert (354/3). Before its pronouncement, the court should be convinced that interdiction is necessary (354/1).
 Cont…
 Judgment and registration of interdiction
• Where the health & interest of the insane person (351/1) or his presumptive heirs (351/2) so require, z court may pronounce
interdiction. Z same reasons justify the pronouncement of interdiction with regard to infirm persons (351/3,340). Z court may define
the scope of the interdiction in its judgment (371/1) and can authorize the interdicted person to do certain acts himself (371/2).
 Retroactive effect of judicial interdiction
• Z condition of insanity obviously precedes the date of application and judgment. In other words, Z person who is entitled to apply
for the interdiction of a certain person would not file his application to court unless he invokes z condition of insanity. Z court can
thus “declare that the insanity of such person was publicly known since such date as may be fixed in the judgment ” (352/1).
 Acts that may be performed by judicially interdicted persons:
• Z judicially interdicted person can contract marriage if he is authorized by court (369) upon application by the interdicted person or
by his guardian.
• Z personal consent of the interdicted person and his guardian are required for requesting divorce or end an irregular union (370).
• Z action to disown a child “may, with the permission of the court be instituted by the interdicted person ” (370/2, 791/1).
• Z judicially interdicted person can acknowledge paternity with z permission of the court (749).
• Z concurrence of z interdicted to certain acts of the tutor (371/3) may be made a requirement.
 Juridical acts in excess of the
interdicted person's powers
• Acts that are performed by an interdicted person in excess of his powers shall be invalidated upon
application by z judicially interdicted person, his representatives or heirs (Art 373/1 cum 314).
• In z case of marriage, however, Art 369/3 allows any interested party, other than z ones stated above, to
apply for the nullity of z marriage contracted by an interdicted person, without prior authorization by
court.
• Third party in good faith who is not aware of z interdicted person's disability is entitled to damages
caused by z invalidation of z contract (Arts 374, 375).
 Withdrawal of judicial interdiction
• Application for withdrawal of interdiction may be made by z spouse, by any relative (by consanguinity or
affinity) or by z public prosecutor (Arts 377/2 cum 353/1). It may also be made by z guardian or tutor of z
interdicted person (377/3).
• Pronouncement of withdrawal of z interdiction shall be made by court (378) where it appears that:
 z causes of the interdiction have ceased, and
 That the interdicted person can conduct himself & administer his property by himself.
 Legal Interdiction
• Z rationale behind legal interdiction is not to protect the incapacitated individual, but instead, to protect society from the legally
interdicted person.
• According to Art 380 “a person interdicted by law is one from whom z law withdraws the administration of his property as a consequence
of a criminal sentence."
• Legal interdiction is determined by penal laws.
• Art 123 (c) of z 2004 Crim C inter alia (among other things) deprives an unworthy offender of “his rights to exercise a profession, art,
trade or to carry on any industry or commerce.”
• Z acts that z interdicted person is not entitled to perform are subject to invalidation upon request by the interdicted person, the
person who has contracted with the legally interdicted person, or by the public prosecutor (387/2).
 Juridical acts of a legally interdicted person as void on two grounds.
 First, z act can be considered as though its subject matter is illicit; &
 Secondly, unlike z other grounds of general incapacity, z nullity of z juridical act may be requested not only by z interdicted person & z
public prosecutor, but also by z person with whom z legally interdicted person contracted (Art. 387/2).
• Z rights of z legally interdicted remain unaffected in relation to his person (i.e. marriage, divorce, acknowledgement of a child and
disowning a child).
• Thus, he doesn't need a guardian, but only a tutor for his proprietary interests.
• Legal interdiction ceases when z interdicted “has undergone the punishment for z duration of which z disability is to last” (388).
 Organs of protection
• Z organs embodied in z Civ C in order to protect, represent & care for minors, judicially interdicted
persons & legally interdicted persons are z guardian, tutor, co-tutor, tutor ad-hoc, family council & z
assistant tutor.
• Courts also play a significant role as an organ of protection.
• Guardian, tutor, co-tutor and tutor ad hoc
• Z guardian is entrusted to take proper care of z person of the minor, &Z guardian shall determine z
residence of z minor (Art. 256 -RFC), watch over z health of z minor (257 -RFC), & direct & supervise z
minor's upbringing & social contacts (258, 259 -RFC).
• Z guardian shall also ensure that z minor be given education (260 -RFC & administers a certain income
necessary for z minor's care (261, 262 -RFC)).
• According to Arts 358, 362 & 363 of z Civ C, z guardian of z judicially interdicted person undertakes
analogous tasks.
• Z tutor represents z minor ‘in matters concerning pecuniary interests & administration of property’
(Art 216 -RFC).
 Cont…
• Z guardian of z minor is at z same time z tutor (231/1 -RFC). Z exception to this rule of joint
responsibility are: appointment of a tutor by a parent retaining guardianship (232 -RFC), appointment
that indicates a separate function (233, 231/2 –RFC) & separation of the functions (226 -RFC).
• Z minor's guardians & tutors are his parents (219 -RFC). One of z parents shall exercise these functions
in case of death, incapacity or unworthiness of z other parent (220/1 -/RFC). Z functions are performed:
• by z mother where z father of the child is unknown (220/2 -RFC),
• by z person appointed by mutual consent or by court in the case of divorce (221 -RFC),
• by a testamentary guardian or tutor appointed by a parent's will (222, 223 - RFC),
• by persons determined by law where z conditions above do not exist (225 -RFC), and
• by persons appointed by court (227 to 229, RFC).
• As regards judicial interdiction, z court that declares z interdiction shall in all cases appoint z guardian
& the tutor. According to Art 359 of the Civ C, “No person, other than z spouse, z ascendants &
descendants of z interdicted person, shall be bound to retain z function of guardian or tutor for more
than five years.”
 Cont…
• In addition to guardian & tutor there may also be a co-tutor appointed by court (Art. 219, Civ C). By virtue of Arts 220, 221
(Civ C) and 234, 235 (RFC), a tutor ad hoc shall be appointed by court where there is conflict of interests between z tutor &
z incapacitated person, or if there is conflict of interests between several minors represented by z same tutor (235 –RFC).
Family council and assistant tutor
• With regard to minors, the RFC has given z functions of z family council to courts. Yet, the Civ C provisions that embody z
functions of z family council apply to other incapacitated persons.
• The family council is concerned with z overall wellbeing of z incapacitated person. It may be convened by z guardian, tutor,
assistant tutor, court or any member of z family council (248). It is normally active under various circumstances such as
death, incapacity or unworthiness of parents. Where significant pecuniary issues are involved in particular, z family council
is entitled to direct & supervise z activities of z tutor.
• In regions where z RFC has not yet been adopted, z family council of a minor is normally comprised of z direct ascendants,
brothers & sisters (of age) of z minor (241)
• Z family council of a judicially interdicted or legally interdicted person “shall consist of his ascendants, his brothers & sisters
who are of age, his spouse & his descendants who have attained majority (360, 385).
• The assistant tutor represents z council in receiving z accounts of z tutor, assists z tutor “in z performance of z acts
specified by z family council,” convenes z family council, & replaces z tutor (at the latter’s request) when a particular act
involves z tutors conflicting interest.
 Cont…
Termination of functions of organs of protection
• Z functions of organs of protection terminate (227) under z
following circumstances:
 When z incapacity ends;
 When z incapable person dies;
 Where a person exercising the function dies, is declared absent
(215), becomes incapable, unworthy or is removed; if a new
person is appointed to substitute z function of the previous person.
 END OF PHYSICAL
PERSONALITY
 1. Probable death of a person: Absence
• 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.
 1.1- Declaration of absence
a) Conditions, application and jurisdiction
• “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” (154/1).
• The court of the place in which the absentee had his principal residence has jurisdiction to receive
the application and give its judgment (154/2).
 Cont…
b) Publicity
• The application for declaration of absence must be publicized
in the manner prescribed by court (i.e. through newspaper,
radio, or whatever the court prescribes) in the place where
the absentee had his last principal residence and in any other
place where the court considers such publication useful (155).
• This is mandatory. Such publicity may enable the court obtain
news or information about the absentee.
 Cont…
c) Inquiry
• Z court may (in addition to the publicity stated above) order an inquiry about z absentee (156), with z assistance of z public
prosecutor in all places it considers useful.
d) Declaration of absence
• Z court shall declare absence “where z death of z absentee appears to be probable” (157/1).
• In making its decision, z court shall have regard into all the circumstances of z case, and it particularly considers whether the absentee has
appointed an agent for the administration of his property (157/2) & whether there are possible causes that have impeded news from him (157/3).
• Z court is required to declare z absence a year after the date of application where z absentee has disappeared for five years or more prior to the
date of application and no news have been heard following publicity (159). Art 158 allows z court to postpone its judgment for a year or postpone
the effect of its judgment for a year after its delivery.
• In its declaration of absence, z court shall establish z day when z last news of z absentee was received (160) based on the evidence submitted.
e) Declaration of death where the absentees death is certain
• If z evidence that has been gathered by court “establishes in a manner which may be considered certain that z absentee is
dead, z court to which z application for z declaration of absence was made, may deliver a judgment declaring z death of z
absentee” (161).
• Art 111 applies to cases where an application is made to court requesting declaration of death of a person who has disappeared
under such circumstances that his death is certain although his remains have not been found.
 Cont….
1.2- General effects of absence
• Declaration of absence will affect those whose rights depend on the death of z
absentee & those whose obligations toward z absentee depend on his being alive.
• Z persons who have rights dependent on z death of z absentee, such as, a
beneficiary of life insurance or heirs, may enforce these rights “after z judgment
declaring z absence has become final as though z absentee were dead” (165/1).
However, they are required to give a guarantee or security for possible
restitution in case z absentee reappears (165/2).
• “Persons who have obligations depending on z condition that z absentee is alive
shall no longer be bound to fulfill such obligations” (166/1). Yet, z court may
require guarantee or security, in case z absentee should still be alive (166/2).
 Cont…
3- Special effects of absence
• Z marriage of z absentee shall be dissolved on z day on which z judgment declaring z absence has become final ” (Art 75/a -
RFC, Art 163/1 Civ C). Declaration of absence establishes z day when z last news of z absentee was received (160), and
marriage concluded by z absentees spouse after this date is valid. Such marriage may be impugned under two conditions,
namely: by the absentee himself (163/2), or by z public prosecutor under z circumstances stated under Art 163/3. z
reappearance of the absentee does not affect z new marriage if judicial declaration of absence is used as serious ground of
divorce in accordance with Art 670/b of the Civil Code rather than as ground for dissolution of marriage as envisaged under
Art 163/1 of the Civ C (Art. 75/a RFC).
• Z second major special effect of absence is related to inheritance to which z absentee would have been entitled. Succession
devolving on absentee shall devolve on z other heirs or legatees without taking into account z portion which would have been
assigned to z absentee (164/1). Z court may oblige z heirs or legatees to furnish a guarantee or security for safeguarding z
absentees right in z event of his reappearance. Z share of an absentee does not devolve on other heirs or legatees if he has
descendants because Art 853 of z Civ C (in conjunction with Art 165) entitles them to “take his place & exercise z rights
relating to z succession”.
• Z third special effect of absence pertains to z property owned by z absentee. According to Art 167, z property of z absentee
may be placed in possession of persons who would have been called to succeed in case z absentee had died on z day of z last
news. Such persons are required to take good care of z property as if it is their own (168/1), & may be obliged by z court to
give a guarantee or security (168/2). They are bound to observe z restrictions against transfer of ownership (169/2) & z duty
to invest sums received (169/1) within three months from z date of their receipt.
 1.4 - Termination of absence
and its effects
• According to Art 170, declaration of absence shall cease to have effect if:
 the absentee reappears; or,
 it is proved that the absentee was alive at the date subsequent to the judgment; or,
 it is proved that the absentee has died.
• Upon reappearance, the absentee is entitled to recover his property (Art.171/1) in its current condition, i.e.,
despite depreciation through the normal (168/1) use and enjoyment of the property (bonus pater familias).
• The absentee shall also recover the proceeds of property that has been transferred (e.g. through sale) and
the property acquired through the investment of the capital. But income derived from the property (171/2) is
retained by the heirs and legatees who had taken possession of the absentees property.
• The absentee has the right to claim damages where heirs or legatees infringe the obligations stated under
Art 171/1 or 171/2; or where they commit fraud (173/3).
• The guarantees or securities shall be extinguished (173/2) upon the lapse of ten years since the date of the
last news, established by judgment of declaration of absence (172).
 JURIDICAL PERSONS
Juridical persons: An overview
• Under ‘bodies corporate’ the Civ C recognizes the legal personality of the State (Art 394), Territorial Sub-
divisions of the State (Art 395), Ministries, public administrative authorities, public establishments and religious
institutions (Arts 396 – 399).
• The capacity of these juridical persons is determined by the issue whether such a legal entity exercises its rights
and activities within the scope of its functions.
• As stipulated under Art 401/1 of the Civ C “Acts performed by the bodies referred to in (Arts 394 to 399) in excess
of the powers given to them by law or without the observance of the conditions or formalities required by law shall
be of no effect.” This is known as the principle of ‘ultra vires’ acts. Articles 403 further provides that “the bodies
referred to in (Arts 394 to 399) shall be liable for any damage arising from the fault or act of their organs or
(employees) in accordance with the provisions of (the Civ C) relating to ‘Extra contractual Liability and
Unlawful Enrichment”.
• The Civ C also recognizes associations (Arts 404 to 482). Art 404 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.”
• Arts 406 and 407 state that the provisions applicable to associations (i.e. Arts 404 to 482 shall apply to trade
unions and religious institutions in the absence of special laws concerning them.
 Cont…
• The constitutional stipulations enshrined in the FDRE Constitution include separation of
State and religion (Art 11), absence of discrimination on grounds including religion (Art 25)
and the right to religion and belief (Art 27). The Civ C also defines partnerships (a term used
to denote BOs) established “with a view to securing and sharing profits” (Art 405/1).
• The BOs that have been enumerated under the Ethiopian Com C of 1960 are GPs, LPs,
Ordinary Partnerships,, PLCs and SCs.
• The personality of partnerships and its owners is so interconnected that the liability of the
partnership shall entail joint and several liabilities of the general partners. Companies,
however, have distinct legal personality of their own that is distinct from shareholders. In
effect, liability of a private limited company or a SC does not go beyond assets of the
company.
• Art 405/2 further recognizes “cooperatives and other groupings which tend to satisfy the
financial interests of their members by placing them in a position to save money.”
 Law of Trader and Business Organizations

• Traders
• Businesses are operated by persons, whether physical or juridical. Physical persons who operate a sole business are referred to as traders. Art 5 defines z
trader. This provision has two key elements: the general condition & z special condition. Z general condition consists, in the existence of an enterprise
or business, of a profession, & z goal of realizing profits while the special condition is such that the person carries out any of z activities enumerated in
Art 5 as her business object. Traders, pursuant to Art 5, are persons who professional & for carry on any of the activities stated from 1-21
• Positive Definition: According to z general condition, a physical person becomes a trader if & only if he operates a business/enterprise, engages in such
business professionally, & for gain. Z business requirement can be read into Art 5 without difficulty. This is so for two reasons. First, it is a priori. One
cannot be a trader without operating a business or an enterprise. Second, though it has been contended that z business requirement is implicit in z fact of
being trader, it is submitted that a conjunctive reading of Arts 125(1) & 5 render it explicit. Art 125(1) stipulates that “Every trader operates a business.”
From this, it appears that there is no trader who does not operate a business.
• Z second requirement of z general condition says that one who operates a business has to do so professionally. Z profession requirement refers to
something different from z standard lexical meaning of z word “profession” or “professional”. It is in the sense of a principal calling, vocation, or
employment that the Code makes use of it. To say that z business that is being operated by a certain person has to be his principal calling is, in effect, to
say that he who operates a business as a pastime or in his leisure does no be counted as a trader.
• Z third requirement is that one who starts a business & engages himself in such business professionally does not become a trader unless he does so for
profit.
• According to z special condition, a person does not become a trader the moment he runs a business professionally & for gain but z business objects of
such person has also to be carry out one or more of the activities listed in Art 5 of the Com C.
• Negative Definition: A negative definition of z trader is also to be found in Arts 6-9, which exclude from farmers, fishermen & artisans from the scope of
the Code's applicability. In particular, Arts 6 & 7 deal with agriculture, while Art 8 assimilates fishermen & persons who breed fish to farmers. Art 9 deals
with artisans, who are already excluded by sub-arts (5),(7),(8),(9),(10) & (11) and (15) of Art 5.
 Cont….
• According to Art 128, z corporeal elements that make up a business include
equipment's & goods.
• In a nutshell, z term “business” embraces tangible & intangible assets, including
tools, equipment's, 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 z business (fonds de commerce). Hence, z
land or buildings which form of the business premises & the fixtures on such
premises are no part of z business even though they are owned by z trader himself.
• To a greater degree, z business is regarded as an entity distinct from its constituent
elements, as long as z whole is more valuable than z sum of z constituent parts. In
this sense, z business is a res, thing, or object over which a person can exercise
property rights, including ownership, usufruct, and lease.
 Goodwill and Its Protection by Unfair
Competition

• Since z definition of goodwill in Art.130 of the Com C is defective, it is of little help to us. This is so, precisely because it fails to tell us
the essence or nature of goodwill. Instead of doing z proper job of a definition, it gives you an extra piece of information concerning its
origin & the obvious thing that goodwill has a value. Art. 130, reads: z goodwill results from the creation and operation of a
business and is of a value which may vary according to z probable or possible relations between a trader & third parties who may
require from him goods or services.
• Definitions of z term as found in the Black’s Law Dictionary and z Oxford Dictionary of Law respectively.
• (1) A business's reputation, patronage, & other intangible assets that are considered when appraising z business, esp. for purchase; z
ability to earn income in excess of the income that would be expected from z business viewed as a mere collection of assets. • Because
an established business's trademark or service mark is a symbol of goodwill, trademark infringement is a form of theft of goodwill.
• By z same token, when a trademark is assigned, z goodwill that it carries is also assigned . "[Goodwill] is only another name for
reputation, credit, honesty, fair name, reliability." "Good will is to be distinguished from that element of value referred to variously as
going-concern value, going value, or going business.
• (2) Z advantage arising from z reputation & trade connections of a business, in particular the likelihood that existing customers will
continue to patronize it.
• Unfair competition law is nothing but one of z devices designed to protect or preserve z goodwill of a business. As per Art.131, two
alternative courses of action have been put at z disposal of a trader in z hope of enabling him to effectively safeguard his goodwill. Z first
course of action available to such a trader is to bring an unfair competition claim under Art.133 of the Com C. Z second is to
institute a proceeding based on Z legal or contractual prohibitions specified in Art. 30,40,47,55,144,158,159,204 & 205 of Z
Com C.
 Cont…..
Commercial Unfair Competition
• Art.133 sets forth acts of competition that are regarded as unfair as follows:
• Any act of competition contrary to honest commercial practice shall constitute a fault.
• The following shall be deemed to be acts of unfair competition:
 Any acts likely to mislead customers regarding z undertaking, products or commercial activities of a competitor;
• Any false statements made in the course of business with a view to discrediting the undertaking, products or commercial activities of a competitor
• Implicit in the notion of commercial unfair competition are two ideas: unfairness and competition. Competition presupposes the existence of
competitors. Competitors are traders who are trying to reach z same customers. In other words, competitors are traders who offer products or
services in z same market. Thus, inherent in z idea of competition are three elements: they must be selling similar products, in the same area, and
at the same time.
 Art.133 gives us two standards whereby we can designate certain acts of commercial competition as unfair. Z first, or the general
standard, is provided for in sub-art (1). Z second, which might be called the specific standard, is provided for in sub-art (2). Z
specific standard can further be broken down into two alternative requirements: likelihood of confusion and false discrediting
statements. In connection with the scope of these standards, z first, by contrast, is broader than the second in that it is difficult, if
not impossible, to figure out, at a given point in time and space(i.e., now and here), all possible situations of unfair competition that it
covers.
 Unfair competition, as defined in sub-art.(1), expresses the idea that a particular act of competition is to be condemned as unfair
because it is inconsistent with the community's currently accepted standards of honest practice. Thus, unfair competition depends
upon commercial custom in determining what acts are honest & what are not.
 Cont….
• The Specific Standard
• Misleading Commercial Practices

• A confusion analysis has to be made to reach a decision pursuant to sub-Art (2) (a) of Art. 133. Any act gives rise to
liability if it is “likely to mislead customers”, though it does not create actual confusion. It is sufficient that an act passes
the test of likelihood of confusion.
• Strictly speaking, sub-Art. (2)(a) Does not grant legal rights in trademarks beyond registration. However, sub-art (2)(a)
affords a remedy for unfair competition involving special designations, including trademarks. Unlike trademark
infringement claims under the Trademarks Registration and Protection Procl, unfair competition claims do not require
any registered marks. As a result, sub-Art (2) (a) of Art.133 involves all unfair competition claims based upon trademark
infringement and extends further to cover other situations of unfair competition.
• A likelihood of confusion exists when there is confusion as to the enterprise undertaking business, products and services,
or commercial activities. More particularly, confusion may occur with respect to any of the following:
• (a) trade-names
• (b) distinguishing marks
• (c) the appearance of a product,
• (d) the presentation, including advertising, of products or services
 Cont….
• False Discrediting Statements

• Sub-Art.(2) (b) of Art.133 broadens the touchstone of liability for unfair competition by making actionable any false statement that is likely to discredit
or compromise the reputation of a business or its activities, when made in a competitive context. A claim of unfair competition under sub-Art.(2)(b)
requires a showing that a party made misrepresentations in the course of business. The elements an alleged injured party must show to sustain a claim
of unfair competition based on false discrediting statements are:
• a party uses any false statement,
• it is the course of business,
• aims at misrepresenting the nature, characteristics, qualities or geographic origin of a competitor's undertaking, goods or services and,
• it is with the purpose of discrediting the establishment, products or services of a competitor.
• It has to be emphasized that any false allegations made, in the course of business, against the person, rather than against his undertaking, products or
services, do not fall under sub-art.(2)(b). Such cases may constitute defamation, subject to the fulfillment of the requirements in Arts.2044-2049 of the
Civ C.
• Effect of Unfair Competition
• Art 134(1) provides for certain remedies: damages and other orders that are deemed fit to put an end to the unlawful act. The orders may in turn take
the form either of an order for corrective publicity under Art.2120 of the Civ C or an injunctive order Art.2122 of the Civ C. Sub-art (2) of Art.133
stipulates: The court may in particular:
• Order the publication, at the costs of the unfair competitor, of notices designed to remove the effect of the misleading acts or statements of the unfair competitor to cease this
unlawful act in accordance with Art. 2120 of the Civ C.
• Order the unfair competitor to cease this unlawful act in accordance with Art. 2122 of the Civ C
• The courts, while entertaining a claim for damages arising from unfair commercial competition, must stick to the rules and principles of the Civ C
governing extra-contractual liability.
 Trade Practice Proclamation
• The Trade Practice Procl, which entered into force on 17 th of April 2003, contains 31 Arts under 4 Parts.
• A closer perusal of the above legislation reveals that it prohibits two types of commercial behaviour: anti-
competitive and no-competitive behaviours. The former comprises of three categories of acts, viz. anti-
competitive agreements, unfair competition, and abuse of dominance while the latter consists of
non-compliance with the legal requirements pertaining to indications of prices, labels, price lists of goods
and services subject to regulation; conditions of distribution, sales and movement of same; orders for
replenishment of stock of same; and the issuance and keeping of receipts.
• The proclamation applies to all commercial activities except such “activities that are, according to
investment proclamation, exclusively reserved for the Government
• The declared aim of the Trade Practice Proclamation, in keeping with the free market economic policy of
the country, is maximizing economic efficiency and social welfare by promoting competition and regulating
anti-competitive practices. In particular, the procl has two objectives: to secure fair competitive
process through the prevention and elimination of anti-competitive and unfair trade practices, on
the one hand and to safeguard the interests of consumers through the prevention and elimination
of any restraints on the efficient supply and distribution of goods and services, on the other.
 Cont….
• According to Art 10 of the Trade Practice Procl No.329: Unfair Competition
• Any act or practice, in the course of commercial activities, that aims at eliminating competitors through different methods shall be
deemed to be an act of unfair competition.
• The following activities, in particular, shall be deemed to be acts of unfair competition.
• Any act that causes , or is likely to cause, confusion with respect to another enterprise or its activities, in particular, the products or services offered by such
enterprise;
• Any act that damages , or is likely to damage the goodwill or reputation of another enterprise falsely;
• Any act that misleads or is likely to mislead the public with respect to an enterprise or its activities, in particular, the products or services offered by such
enterprise;
• Any act of disclosure, acquisition or use of information without the consent of the rightful holder of that information in a manner contrary to honest
commercial practice ;
• Any false or unjustifiable allegation that discredits, or is likely to discredit with respect to another enterprise or its activities, in particular the products or
services offered by such enterprise;
• Any act that directly or indirectly restricts, impedes or weakens the competitive production and distribution of any commercial good or the rendering of any
service;
• Any act that restricts or debars the timely or economic means of producing or distributing any good or rendering of any service;
• The importation of any goods from any foreign country into Ethiopia at a price less than the actual market price or wholesale price of such goods in the
principal markets of the country of their production with the intent to destroy or injure the production of such goods in Ethiopia or to restrict or monopolize
any part of trade in such goods;
• Trading in any manner in goods imported into Ethiopia for humanitarian purpose without authorization by the Ministry
 Cont…
• Trade Practice Investigation Commission
• In 2003, through the enactment of the Trade Practice Procl No.329, the House of Peoples’ Representatives created the Trade
Practice Investigation Commission and charged it with the duty to prevent and eliminate “ anti-competitive and unfair
trade practices [and] any restraints on the efficient supply and distribution of goods and services.”
• The five-member commission, representing the public sector, the private sector, and consumers’ association and being
appointed by the Prime Minister upon nomination by the Minister of Trade Industry, is empowered to conduct appropriate
investigations and hearings and to take against violators administrative measures and penalties. Sub-art (2) of Art 15 provides
the following.
• The Commission shall have powers to:
• investigate complaints submitted to it by any aggrieved party in violation of the provisions of this Proclamation;
• compel any person to submit information and documents necessary for the carrying out of the commission's duties;
• compel witnesses to appear and testify at hearings;
• take oaths or affirmations of persons appearing before it, and examine any such persons;
• enter by showing the commissions Id card and search the premises of any undertaking during working hours, in order to obtain information or documents necessary for its
investigation;
• appoint or employ, upon the approval of minister, experts to undertake professional studies as may be necessary;
• Take administrative measures or/and give penalty decisions on any complaints submitted to it.

• The said legislation also requires that in order to execute any decision for administrative measures and penalties, it must be
endorsed by the Minister of Trade and Industry which has the discretion to approve, amend, or remand the same.
 UNIT THREE: BUSINESS ORGANIZATIONS

• Most, if not all, of the BOs with which lawyers are concerned are legal entities which have firm-names and head office; they can acquire rights and
incur liabilities, and can sue and be sued under their firm names.
• BOs, from a legal viewpoint, are undertakings with more than one member, having assets distinct from the private assets of the members and a
formal system of management, which may or may not include members of the organization.
• The first feature, initial plurality of membership, distinguishes the business organization from the business owned by one man; in the latter case the
trader can do as he pleases with its assets, since he is personally liable for debts and obligations incurred in connection with the business, no special
rules are needed to protect its creditors beyond the ordinary provisions of bankruptcy law.
• The second feature, the possession of distinct assets, is essential for two purposes: to identify the assets to which creditors of the organization
can resort to satisfy their claims (though in the case of some organizations, such as the partnerships they can also compel the member to make
good any deficiency), and to make clear what assets the managers of the organization may use to carry on business for the member ’s
benefit. The assets of an organization are brought in directly by its members by way of contribution. Contributions may be made in cash, kind, and
service in all forms of BOs other than the SC or PLC.
• The third essential feature, a system of management, varies greatly. In a simple form of BO the members are entitled to participate in the
management, and each member has an equal voice in management decisions.
• BOs are affected by the legal environment in which they operate. Accordingly, two aspects of the Law of BOs should be noted. First, the law facilitates
various combinations of labor, capital and management. Certain business or economic goals may be better served by one organizational form than
another. The second noteworthy feature of the Law of BOs is that each form of organization imposes varying degrees of legal formalities on its
participants. Further, one's business relationship may have different legal consequences, depending on which organizational form is selected.
• Article 210 of the Com C defines a BO as “any association arising out of a partnership agreement.” A partnership agreement, pursuant to Art 211 of
the Code, is “a contract where by two or more persons who intend to join together and to cooperate undertake to bring together contribution for the
purpose of carrying out activities of an economic nature and of participating in the profits and losses arising out there or ,if any. ”
 Cont…..
• According to Art 210 a BO is an association stemming from a contract known as “partnership
agreement.” Art 223 suggests that even if a BO emanates from a partnership agreement, the mere fact
of concluding a valid partnership agreement is not enough to create a BO at law. There is more to the
formation of a BO de jure than the conclusion of a partnership agreement.
• A BO is a contractual association of two or more persons who undertake to bring in contribution with a
view to carrying out an economic activity. It is an essential character of a BO that it should have a profit
motive, this being the feature which distinguishes it from an association.
• Distinguishing Between BOs and Associations
• Article 404 of the Civ C 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. “ What transpires from this
definition is the most important distinctive feature of associations, namely profit. If profit is considered
to be the underlying motive for the formation of a certain organization, then it is said to be a BO.
Associations are always formed for non-profit purposes.
• Associations are expressly prohibited from engaging in any of the commercial activities listed in Art 5 of
the Com C. Art 25(1) provides that “associations may not carry on any trade. “
 Cooperative Societies Distinguished

Cooperative Societies are groupings that are organized to provide an economic service without profit to their members.
Cooperative societies are governed by the Cooperative Societies Procl No.147/1998. According to Art 4 of the Cooperative
Societies Procl, Cooperative Societies shall have one or more of the following objectives:
• To solve problems collectively which members cannot individually achieve;
• To achieve a better result by coordinating their knowledge, wealth and labor;
• To promote self-reliance among members;
• To collectively, withstand and solve economic problems;
• To improve the living standards of members by reducing production and service costs by providing input or service at a minimum cost or
finding a better price to their products or services;
• To expand the mechanism by which technical knowledge could be put into practice;
• To develop and promote savings and credit services;
• To minimize and reduce the individual impact of risks and uncertainties;
• To develop the social and economic culture of the members through education and training.
• This form of groupings is generally adopted by groups of individuals who wish to pool their resources to gain some
advantage in the marketplace. Consumer purchasing cooperatives are formed to obtain lower prices through quantity
discounts. Seller marketing cooperatives are formed to control the market and thereby obtain higher sales prices from
consumers. Credit cooperatives and farmers’ cooperatives are other examples of this form of groupings.
 Classification of Business Organizations

Partnerships and Companies

• This classification is according to the general characteristics they share in common.
• Partnerships:
• Is an aggregate or collection of individual members. Thus, in a partnership firm, of paramount importance is
personality of the individual partner. Partnerships are suitable for small business involving a relationship of mutual
trust and confidence.
• The partners are agents for each other. Therefore, they are normally jointly and severally liable fort the acts of each
other and the liability of each partner to third parties is unlimited, although they are liable to contribute to each
others liability and entitled to claim to an indemnity from the partner at fault.
• In the absence of a contract to the contrary, comes to an end when a partner dies or becomes insolvent. Hence, the
length of existence of the partnership firm is generally considered as contingent.
• A partner cannot transfer or assign his interest in the firm to an outsider or third party and make the transferee or
assignee a partner without the consent of all the other partners. In other words, a partner can transfer his share in
the firm, but the assignee does not thereby become a partner and is merely entitled to the assigning partner's share
of the profits.
 Cont…
Companies:
• A company is an aggregate or collection of shares or capital. As a result, of capital importance
is legal personality of the company. Thus, the company may own property, make contracts, and
sue and be sued under its name. Also, it is entirely distinct from its members.
• The company has perpetual succession. As a result, death or insolvency of a shareholder does
not affect its existence.
• Shares in a company are freely transferable unless the company's articles of association
otherwise provides. Thus, a shareholder can transfer his share and ordinarily the transferee
becomes a member.
• Members of a company are not entitled to take part directly in the management of the company
unless they become directors. That is to say, a shareholder of a company acting in his individual
capacity cannot bind the firm by his acts.
• A company is managed by a BODs, general manager, shareholders’ meetings, and auditors.
 Forms of Business Organizations

• Though the main classification is between partnerships and companies, partnerships

can be further broken down into four legal forms and companies comprise of three
legal forms Totally, there are seven legal forms of BOs provided for in Art 212 of the
Com C:
 Joint venture (JV)
 General Partnership (GP)
 Limited Partnership (LP)
 Limited Liability Partnership (LLP)
 Share Company (SC)
 Private limited company (PLC)
 One man company (OMC)
 Distinguishing between Commercial and Non-Commercial Business
Organizations

• Art 10(1) of the Com C defines a commercial BO as one in which the objects under the MOA or in fact are to carry on any of
the activities specified in Art 5 of this Code. Art 10(2) stipulates that “share companies and private limited companies shall
always be deemed to be of a commercial nature whatever their objects.” This definition is supplemented by Art 214 which
provides that any of the seven BO listed in Art 212 may be commercial except for an ordinary partnership.
• SC, PLC and one man company are always commercial, whether or not their objects include any of the commercial activities
listed in Art 5.
• GP, LP, LLP and JVs may or may not be commercial, depending on whether one of the objects under the MOA or in fact is to
carry on any of the activities listed in Art 5. As per Art 213(2), if a commercial BO is formed in the form of an ordinary
partnership, or if its form is not specified, the organization is deemed to be a commercial GP.
• Generally, this distinction rests on two criteria. The first is the same as that which determines whether or not an individual
is a trader just as the trader is a person whose profession is the doing of acts of commerce, so a BO is commercial which
devotes itself, either under its MOA or in fact, to commercial operations specified in Art 5. However, in the case of BOs, the
general rule for determining the commercial character by reference to objects has been made subordinate to two
exceptions.
• On the one hand, for whatever its objects, any BO will be regarded as commercial as long as it adopts either of the three
legal forms for commercial BOs, namely the SC, PLC and OMC
• The general distinction between commercial and non-commercial BOs entails several legal consequences. Accordingly, BOs
are subject to differential treatment of the law depending on whether they are commercial or non-commercial.
 Formation

• Generally, any BO must be formed by a contract known as partnership agreement.. Art 211 of the Com C defines the partnership
agreement as “a contract whereby two or more persons intend to joint together and to cooperate undertake to bring together
contributions for the purpose of carrying out activities of an economic nature and of participating in the profits and losses
arising out thereof.” The Key elements in the definition of the partnership agreement
• A Partnership agreement is a contract: The partnership agreement, being a contract, is subject to the Civil C provisions
governing contracts in general, in addition to the pertinent provisions of the Com C. Accordingly, in order for a contract to be a valid
partnership agreement, the parties to it must fulfill the substantive and formal conditions set down by Art 1678 et seq of the Civ C
• Persons Incapable Under the Civil C: The validity of a partnership agreement is affected by the incapacity of a party to it in the
same way as in any other contract. In this regard, the Com C contains a few provisions that supplement the Civ C. Art 11(1)
prohibits persons incapable under the Civ C from carrying on any trade. Sub-Art (2) of the same provides that if an incapable person
carries on a trade, any of his acts related to the trade may be invalidated in accordance with the pertinent Civil C provisions.
• The provisions of Art 11 also apply mutatis mutandis to the incapacity of a party to become a member of a BO in which one has the
status of a trader. A general partner in a commercial GP or commercial limited partnership is deemed to be a trader.
• Art 12 prohibits the tutor of a minor or an interdicted person from carrying on a trade in the name and on behalf of the minor or
interdicted person, except in the cases provided in Art 288 of the Civ C. The effect of this provision is to preclude the tutor from
joining, in the name of a minor or an interdicted person, a business organization which would make the minor or interdicted person
a trader.
 Cont….
• According to Art 288 of the Civ C, a tutor may carry on commercial, industrial or
other enterprises forming part of the estate of the incapable if is so instructed by
the family council. Also under Art 276 of the RFC, the tutor shall do so if is
enjoined to do that by a court. The family council or the court, as the case may be,
must instruct the tutor whether to liquidate or to keep them going, having regard
to the time for which the tutorship is to last, the abilities and potentialities of the
tutor, and the interest of the incapable. Art 13 provides that emancipated minors
may not carry on a trade unless authorized in writing by the family council.
• Pursuant to Art 14, minority cannot be set up against third parties where a minor
who carries on a trade got himself entered in the commercial register as though he
were of age. According to Art 15, judicial interdiction does not affect third persons
unless notice of the incapacity is entered in the commercial register.
 Cont…..
Spouses
• As per Art 16, married couples may become members of a BO as if they were not married. A spouse may object in the interest of the family to
the other spouse's becoming a member of a BO which bestows upon the latter the status of trader. The effect of such objection is to limit the
trading spouse's liability for business debts only to the extent of his personal property. As long as such debts are normally considered to be of
the marriage, and, thus, recoverable against the personal property of each spouse and the matrimonial regime, such objections do not
preclude the trading spouse from becoming a member of the BO. The objections can be set up against third parties if only entered in the
commercial register.
Two or more persons, physical or juristic, can be parties
• Generally, nothing prevents a BO from becoming a member of another BO. An association may not become a general partner of a commercial
GP or commercial LP, since, pursuant to Art 25, it “ may not carry on any trade.” Whether it may become a member of another BO depends on
whether it thereby acquires as one of its purposes the making of profits. If it does, it may not become such a member. Nevertheless, noting
seems to prevent an association from joining a share company or PLC as a means of investing extra funds or acquiring more funds to carry
out its legitimate purposes.
• The minimum requirement of two persons is true for all BOs except the SC, for which there must be at least five.
• There is no general limit on the maximum membership size of BOs, except in the PLC where it is fixed at fifty.
Intent to Join Together and Cooperate
• For a partnership agreement to be valid, the parties to it must have had the intention “to join together and to cooperate.” In effect, this is to
mean that the parties to the partnership agreement acted in the way they did with a view to forming a BO. In addition, they must have
intended to collaborate on an equal footing though they all need not intend to participate in the management and control of the BO. The
degree of collaboration expected from members varies from one form of BO to another.
 Cont….
Contributions : The parties must undertake to bring in contributions in order that a contract subsists as a valid partnership agreement. Contributions can be made in
cash, kind, or services. In all BOs, except in a share company or private limited company, they should be made in cash or kind. Capital contribution includes intangible
property.
For the purpose of carrying out economic activities: The objective of the parties to a valid partnership agreement must be to engage in economic activities. The
formulation under Art 211 which stipulates that “activities of an economic nature” is so broad that it would appear to cover almost any profitable human endeavor,
provided that it is possible, moral and lawful. All non-economic activities are excluded outright by virtue of the above-mentioned requirement.
Participating in the profits and losses arising out thereof : Every party to the partnership agreement must have the intention to share in the profits and losses.
Profits and losses will be distributed between the members in the proportion stipulated in the partnership agreement. In the absence of such stipulation, every partner
shall have an equal share in the profits and losses, irrespective of his contribution [Art 252 (1)]. Any stipulation giving all the profits to one partner or relieving one or
more of the partners of his share in the losses is null and void (Art 215).
 Cont….

Publicity
According to Art 219(1) of the Com C “any BO other than a JV shall be made known to third parties.” The policy consideration behind the publicity requirement is
to protect third parties. Members are required to bring to the attention of the public that they have formed a BO. This requirement is unique to partnership
agreements, as distinct from other contracts, because the very existence of the BO depends on its fulfillment. Publicity consisted in cumulative fulfillment of the
requirements relating to publication of notice, deposit of documents, and registration in the commercial register [Arts 220-224, Com.C.].
However, Procl No.376/2003 does away with the first element of publicity, namely publication of notice. Art 2(2) of the same provides that “BOs shall acquire legal
personality by registering in the commercial register without being publicized in a newspaper as provided for under Art 87,219,220,223, & 224 of the Com code for
their establishment and amendments to their MOAs.”
Legal Personality
Only when an entity has legal personality can it have legal rights and duties. A human being has legal personality from the beginning to the end of his life. Art 1 of
the Civ C provides that “the human person is the subject of rights from its birth to its death.”
• In addition to individuals, groups of people can have legal personality. They are broadly called business organizations, and
they allow the law to treat the group as separate from the individuals who operate or own it. Art 210(2) of the Com C
stipulates that “any BO other than a JV shall be deemed to be a legal person.”
• Legal personality, therefore, is a device whereby groups of people such as BOs become the subject of rights and duties.
 Attributes of Legal Personality

• Capacity: The fundamental importance of legal personality is that an entity with legal personality is capable of enjoying, as opposed
to exercising, rights.
• BOs are, pursuant to Art 22 of the Com C, expressly invested with the capacity to “carry on any trade in accordance with the
provisions regulating such trade.”
• BOs with legal personality should be capable of performing all the acts of civil life consistent with their nature unless declared
incapable by law.
• Since a BO is basically a combination of individual members and initial capital, the members would be co-owners of the property if
the organization does not have a separate legal existence.
• Any liability incurred, in the normal business practice, by one or more of the members in their name shall rest with them. However, if
the law bestows upon the organization legal personality, it may acquire right of ownership over the property and incur liability in its
name.
• Furthermore, it can litigate legal proceedings in its firm-name. Also, it is primarily liable on its property, income & taxable activities.
• Firm name: The name of a BO, firm-name, is chosen by the members in pursuance of the rules governing firm-names. The Com Code
contains specific requirements for names of all BOs except an ordinary partnership. The name of any BO other than the ordinary
partnership must indicate the form of organization: whether it GP, SC, etc.
• Besides the firm-name of a general partnership should include the names of at least two partners and the name of a limited
partnership may only consist of the names of the general partners. A SC and PLC may be operated under assumed names chosen
freely, provided that they do not offend public morals and the rights of third parties.
 Cont…
• Head Office: The head office of a BO is the place where its principal organs of administration and management are
situated. The legal effects of the place of its head office are the same as those of residence for the physical person.
• The significance of the location of its head office figures prominently in procedural matters in particular in relation
to judicial jurisdiction and service of process. Moreover, it determines nationality of the BO under consideration.
• Nationality: The general principle concerning bodies corporate whose head offices are situate abroad is that they
have such nationality as is given to them by the laws of that country. Consequently, a legal person with its head
office in Ethiopia is presumably of Ethiopian nationality in spite of the absence of an express provision.
• As can be gathered from a reading of Arts 545-549 of the Civ C in conjunction with Arts 555-560 of the Com Code,
the formation or operation of a BO and its enjoyment of rights in Ethiopia depend upon the following factors; the
place where its principal business purpose is situate, and the country under whose law it is formed.
• A BO with its head office in Ethiopia is subject to Ethiopian law with respect to its formation and operation.
• A BO with its head office abroad is subject to Ethiopian law if it is formed in accordance with Ethiopian law or if its
principal business object is in Ethiopia. A BO formed abroad (and, presumably, with its head office and principal
object of business abroad) must register in Ethiopian offices.
 UNIT FOUR: ORDINARY PARTNERSHIP

• An ordinary partnership is one of the various forms of partnerships. The major distinction between an ordinary partnership and other partnership
forms is that commercial BOs cannot adopt this form of BO.
• Art 213(2) provides that “where a commercial BO is created in the form of an ordinary partnership or where the form of the organization is not
specified, the commercial BO shall be deemed to be a general partnership.”
• The ordinary partnership, as BOnal form is a partnership which lacks in legal characteristics that make it a commercial partnership. (Art.227)
Therefore, even if it cannot engage in commercial activities (i.e., those listed in Art.5), it can carry out any other economic activities which the
ordinary partnership may legitimately carry out are virtually unlimited.
• Article 228(1) of the Com Code excludes application of the Code provisions regulating ordinary partnerships to a case of joint ownership in which
property is held by several persons for reasons outside their control. The only case in which the provisions governing ordinary partnerships are
applicable is where the joint owners have entered into a partnership agreement for the management of the property jointly owned [Art.228 (2).]
• The purpose of Art.228 is nothing but clarification, insofar as it does not alter the barest minimum condition for the existence of any BO, including
ordinary partnerships, i.e., concluding a partnership agreement. What is conclusive, however, is the making of a valid partnership agreement. For
instance, co-heirs of a deceased trader are co-owners of the hereditary estate until partition.
• It is only when they enter into a partnership agreement concerning the hereditary estate that they can form an ordinary partnership, and, hence,
the provisions dealing with ordinary partnerships apply. But, here we should not lose sight of the special formality that the heirs of the deceased
need to comply with. Art 113 reads:
1. The heirs of a deceased trader shall apply for the registration to be cancelled within two months from the death.
2. Where the heirs carry on the trade under joint ownership, they shall apply for a new registration to be entered.
3. Where the joint ownership is dissolved, the entry made under sub- art. (2) shall be cancelled and the person to whom the business is assigned shall apply for a new
registration to be entered.
 Contributions

• Every partner must make a contribution, which may be in money, debts, other property or skill.
• Where contribution is made in kind, the use only of such property may be contributed. In the absence of a contrary agreement, contributions are deemed to
be equal and of the nature and extent required for carrying out the purposes of the partnership [Art 2229].
• In cases where contribution is made in kind, the contributor must extend to the co-partners warranty against defect and dispossession in a manner a seller
does. If the use only of a property has been contributed, the contributor must perform the duties owed by a lessor.
• Where a partner contributes a debt, he guarantees only the existence of the debt and not the solvency of the debtor, unless otherwise agreed [Art 230]. With
regard to transfer of risk, the risk passes to the partnership by delivery in case the contribution has been made in kind. However, the risk shall remain with
the contributing partner in case where the use only of a property has been contributed. [Art.231]
• Partnership Capital
• Art 80(1) stipulates that “The capital is the original value of the elements put at the disposal of the undertaking by the partners by way of contributions in
cash or in kind”. In view of the foregoing, capital refers not to the money or property contributed as such, rather to its value.
• The value has to be the original value of the contributions in cash or in kind. Calculation needs to be made based on the value of the property on the day of
contribution.
• Partnership capital consists only of contributions in cash or kind, to the exclusion of contributions in skill or service. Consequently, the partnership capital,
being the original value of the total money and property that the partners contribute and dedicate to use in the enterprise, is a fixed amount that may
change only through amendment to the partnership agreement.
• Partnership Property
• The term “partnership property”, as found in the caption of Art 245, refers to “property, debts and rights brought into or acquired by the partnership”.
Therefore, partnership property, being the sum of the value of the partnership's assets, includes all the cash, corporeal and incorporeal property and rights
originally brought into the partnership or subsequently acquired by the partnership. In addition, any property acquired with partnership funds on account of
the partnership must a fortiori be part of partnership property. A more technical definition of the term is provided in Arts 74-85 of the Code.
 Ownership and Possession of Partnership Property

• Partnership property, pursuant to Art 245, belongs to the partners in common under the terms of the partnership agreement. Partnership property is held by the partners as
joint owners. Every partner is a co-owner with all other partners of specific partnership property, such as office equipment, office supplies, and vehicles. Art 245(2) provides that
“every partner may use partnership property in accordance with usual partnership practice.” This normally means every partner has equal rights to possess partnership
property for business purposes or in satisfaction of firm debts, but not for any other purpose without the consent of all the other partners. Sub- art (3) of the same provides that
“No partner may use partnership property against the interests of the partnership or so as to prevent his co-partners form using such property in accordance with their rights.”
• Creditors of the Partnership
• Art 255(1) stipulates that “The creditors of the partnership may claim against partnership assets.” Sub-Art (2) of the same bestows upon the creditors of the partnership the
right to “claim against the personal property of the partners who shall, unless otherwise agreed, be jointly and severally liable to them for the obligations of the partnership.”
• Sub-Art (2) of Art 255 further stipulates that “a partner who is sued on his personal property may require, as though he were a guarantor, that the creditor first distrain the
property of the partnership.” That is to say, a partner who is sued on his personal property for the debts of the partnership can invoke the benefit of discussion pursuant to Arts
1934-1935 of the Civ C like a simple guarantor.
• Sub-Art (3) of same provides that “Any provision relieving the partners or some of them of joint and several liability may not be set up against third parties unless it is shown
that such parties were aware of such provision.” It goes on to stipulate that “Notwithstanding any provision to the contrary, the partners who acted in the name of the
partnership shall always be jointly and severally liable.” The net effect of these two provisions is such that partners can invoke a statutory clause relieving them of joint and
several liability against third parties as long as they can make a showing of awareness on part of such parties of the existence of such clause on condition that they did not act in
the name of the partnership.
• Creditors of the Partners
• According to Art 256 (1), personal creditors of the partners may not attach any of the partnership property; however, a partner may assign his partnership interest to a creditor
or to anyone else in pursuance of Art 250. This entitles the assignee to receive that partners share of the profits. It does not give the assignee a right to any information about
partnership affairs or a right to look at its books.
• A creditor who gets a judgment against a partner may obtain from the court an order against the partners interest in the firm. The court may appoint a receiver to look after the
creditors interests. If profits are insufficient to pay off the creditor, the court may order that the partners share be sold [Art. 256(3)]. The purchase may dissolve the partnership
if it is to exist for an indefinite time. If it is for a term of years that has not expired, the partnership will continue as originally agreed. The purchase will not be a partner, nor can
he exercise any of the partners rights except to receive the share of the profits [Art 260(2) and (3)]
 Management

Statutory managers:
• Managers specifically designated in the partnership agreement or following an amendment thereto and, as such, their names appear in the text of the partnership
agreement.
• Partners or third parties may be appointed to be managers[Art. 236]. Partners, as opposed to third parties, appointed as managers under the partnership agreement,
enjoy special entitlements. Art 239 provides that “A partner appointed as manager under the partnership agreement may carry out all acts of management in
disagreement with the other partners in the absence of fraud. ”
• Besides, Art 240(1) stipulates that “The appointment of a manager appointed under Art. 239 may not be revoked or his powers restricted by the other partners, save for
good cause.” This provision contradicts with Art 233 which reads: “
• The partnership agreement may be varied only with the consent of all the partners. ” This is because revoking or restricting the management powers of a partner
appointed under the partnership agreement by a decision of the other partners amounts to varying the partnership agreement by any vote short of unanimity. Indeed, a
valid variation of the terms of the partnership agreement may be made by a majority vote on condition that a clause to that effect is inserted therein.
• According to Art 240, a partner statutory-manager whose management powers have been revoked can challenge his revocation before a court on the ground that the
reason for such revocation does not constitute good cause.
• Subsequently appointed managers: These are managers appointed by decisions of the partners at any point in time subsequent to the making of the partnership
agreement.
• Managers at law: Every partner, as per Art 236, has the right to act as a manager in the absence of both statutory and subsequently appointed managers.
• Sole manager: It refers to a situation where a single individual has been appointed a manager. Where a single individual has been appointed a manager, he will act
alone.
• Several managers: It refers to a situation in which two or more persons have been appointed managers and their duties have not been specified or where it has not
been specified that they act jointly. In such cases, they may each carry out acts of management. Each manager may object to dealings contemplated by other managers.
And the objection shall be decided on by a majority vote of all the partners [Art.237].
• Joint mangers: In cases where joint managers have been appointed, decisions shall be taken by consensus. However, where an act of management is of an urgent nature
and the other joint managers cannot be consulted, one of them may act alone as if he were a sole manager [Art. 238].
 Cont….
• The Authority of Managers
• Art 3 of the Com C renders Arts 33-36 applicable to BOs except to the extent they are expressly or impliedly modified by provisions on business organizations. A
cumulative reading of Arts 216(1) cum 2189(1) reveals that a business organization is bound by any contracts or other acts made in its name by an agent acting
within the scope of his powers. The two levels of authority are:
• Express Authority: The authority which acts as specified in the partnership agreement and as stipulated in the contract of employment.
• Implied authority: The authority to bind the firm which arises, by operation of the law, from the fact of partnership. This is in line with Art 2179 of the Civ C,
which provides that “the authority to act on behalf of another may derive from the law or a contract.” As per Art 2202(1), the scope of partners implied
authority is to be determined “according to the nature of the business to which it relates.” Thus, the business purposes/objects clause of the partnership
agreement serves as a starting point in deciding the scope of the partners implied power of attorney. As a contrario reasoning of Art. 235, discloses a partner
has an implied authority to carry out any act which is within the “normal partnership practice.” It would follow that implied authority is influenced by customs
and usages of the particular partnership and those of similar business in the area.
• Relationships among Partners
• Rights and Duties of Partners
• The mutual rights and duties of the partners may be determined by the partnership agreement, subject to the mandatory provisions of the law. The mutual

rights and duties may be altered any time with the consent of all the partners. The Com C, coupled with the Civ C provisions applied mutatis mutandis, lays
down the following rules regarding the conduct of the partners to one another.
• General Duties. Partners are bound to:
• Exercise the diligence and skill which they use in conducting their private affairs [Art 243(1)].
• Act in the “strictest good faith” or “utmost good faith” towards the partnership [Art 2208(1), 2263(1),Civ.C.].
• Exercise the same diligence as a bonus pater familias [Art.2211 (1)].
• Be with the same care as a bonus pater familias.
 Cont….
• Sanction: Every partner shall be liable to the other partners in respect of any damage which he caused by his default (Art.243 (2), Com.C.).
• Specific Duties These are duty to:
• Account for his management of affairs [Arts. 2213 & 2210, Civ.C.]
• Refrain from engaging in businesses that are in competition with or otherwise likely to injure the partnership [Art.244].
• Refrain from using the partnership property against the interests of the partnership or so as to prevent his co-partners from using such property in
accordance with their rights [Art. 245(3)].
• Share in such expenses as may be necessary to preserve the partnership property [Art.246].
• Pay interest on loans as well as damages, if any [247(2)].
• Pay interest on delayed payment of contribution in money [Art. 232].
• In fine, subject to any agreement to the contrary, the mutual rights and duties of the partners are as follows:
• A partner is not entitled to receive remuneration for taking part in the conduct of business;
• The partners are entitled to share equally in the profits earned and shall contribute equally to the losses sustained by the firm [Art.251&252].
• A partner making, for purpose of the business, any payment or advance beyond the amount of capital he has agreed to subscribe is entitled to interest thereon at the rate
of 9% per annum [Art. 247(1)].
• Receiving payments from the debtors and issuing receipts against them
• Engagement and dismissal of employees of the firm.
• Accepting, drawing, and issuing negotiable instruments on behalf of the firm.
• Borrowing money and pledging the firm's goods or chattels as security. If the firm's chattels or goods are pledged for a purpose not connected with the
ordinary course of business, the firm is not bound unless specific authority has been given.
 Cont…
Mode of doing act to bind a firm
• Art 2189(1) provides that in order to bind a firm, an act or instrument done or executed by a partner must be done or executed in
the name of the partnership.
• Liability of Partners to Outsiders
• Liability of a partner for acts of the firm: Every partner is liable, jointly with all the other partners and also severally for all
acts of the firm done while he is a partner [Art. 255].
• Liability of the firm for wrongful acts of a partner: Where by the wrongful act or omission of a partner acting in the ordinary
course of the business of a firm, or with the authorities of his partners loss or injury is caused to any third-party, or any liability is
incurred, the firm is liable therefore to the same extent as the partner [Art.2222].
• Dissolution, Winding up, and Termination
• The extinguishment of a partnership consists of three stages:
• Dissolution
• (2) Winding up or liquidation, and
• (3) Termination.
• Dissolution occurs when the partners cease to carry on the business together. Upon dissolution, the partnership is not terminated
but continues until the winding up, unfinished business is completed, receivables are collected, payments are made to creditors,
and the remaining assets are distributed to the partners. Termination occurs when the process of winding up has been completed.
 Cont…
Dissolution
• Dissolution is defined by the Uniform Partnership Act of the United States as the change in the relation of the partners caused by any partners ceasing to be
associated in the carrying on, as distinguished from the winding up, of the business. It designates the point in time when the partners cease to carry on the
business together. The business is not automatically terminated upon dissolution, but has to go through the winding up procedure.
• Grounds of Dissolution
• Grounds of Dissolution Applicable to All Forms of BOs: The grounds of dissolution which are a set out in Arts 217-218 can be grouped into three
categories as follows:
• Legal Dissolution
• Where the business purpose has been achieved or cannot be achieved [Art.217 (a)];
• Where the term for which the BO was formed expires, unless the partners agree to continue the BO [ Art.2179c)).
• Consensual Dissolution: Where the partners agree to dissolution prior to the expiry of the term for which the BO was formed [Art.217 (b)].
• Judicial Dissolution: A BO may be dissolved for good cause by the court on the application of a partner [Art. 218(1)]. Pursuant to Sub-art (2) of the same,
there shall be good cause in particular where a partner seriously fails in his duties or becomes through infirmity or permanent illness or for any reason
incapable of carrying out his duties or where serious disagreement exists between the partners.
Grounds of Dissolution Specific to Partnerships
• Dissolution by Notice: Partnership may be dissolved at any time by any partner by giving six months notice, especially in conditions where:
• No period time is agreed on (or where a partnership agreement is entered into for an undefined period); or.
• A partnership agreement is entered into for the life of one of the partners; or
• The power to dissolve on notice is provided in the P/P agreement. (Art 258).
 Cont…
• Dissolution due to Death, Incapacity, and Bankruptcy of a partner: Art 260(1) provides that the partnership shall be dissolved where one of the
partners dies or is no longer able, under the law, to be a partner. Sub-Art (2) of the same stipulates that a partnership shall be dissolved where partner is
declared bankrupt or where one his personal creditors causes his share to be disposed of under Art 256(3).
Continuation upon Dissolution
• Even if a partnership is to be dissolved, the partners can prevent dissolution by various ways. One such way is that the partners may agree at any time
that the interest of the indebted/insolvent Partner shall be purchased by another partner. Another way is that they agree to take in an
additional partner or they may agree to permit the partner to sell his interest to another and to accept that person as a substitute partner.
These agreements are called buy-out agreements in American legal system. The two situations in which continuation is possible in Ethiopia are:
• Where a partner has given notice to dissolve under Art.258, his partners may prevent dissolution by paying out his share; (Art. 259).
• Where a partner is declared bankrupt or where one of his personal creditors causes his share to be disposed of under Art. 256(3);
Winding up (Arts 264-270)
• Whenever a dissolved partnership is not to be continued, the partnership must be liquidated. The Process of liquidation, called winding up, involves
completing unfinished business, collecting debts, taking inventory, reducing assets to cash, auditing the partnership books, paying creditor,
and distributing the remaining assets to the partners.
• Winding up may be carried out by one or more liquidators appointed under the partnership agreement (statutory liquidators), or, in default, by liquidators
appointed by all the partners (consensual liquidators), or, in default, by court appointed liquidators (judicial liquidators).
• Duties and Responsibilities of Liquidators
• In the absence of a contrary clause in the partnership agreement or by law, the liquidators shall have the same duties and responsibilities as managers.
( Art.265)
• Draw up an inventory of the assets and liabilities of the partnership (Art. 266)
 Cont…
Powers of Liquidators
• The liquidators shall take all steps necessary to complete the winding-up of the partnership.
• The liquidators may sell the property of the partnership, represent the partnership in legal proceedings and may compromise or
refer to arbitration any matters in issue.
• The liquidators may not undertake new business in the name of partnership but may complete business already started. [Art. 267]
• The purpose of the winding up is to liquidate the assets at their highest value and bring the affairs of the partnership promptly to an
end. This may involve completing contracts of the partnership. In order to finish these jobs, the liquidators would have authority to
enter into new contracts with subcontractors, with material supplies, and with workers. As a result, it may be necessary that the
liquidators borrow money on behalf of the partnership in order to complete these contracts.
Distribution of Assets
• After all the partnership assets have been collected and reduced to cash, they are distributed to creditors and the partners. When
the partnership has been profitable, the order or distribution is not critical; however, when liabilities exceed assets, the order of
distribution has great importance.
• Arts 268-270 of the CC stipulates:
• The liquidators shall pay the creditors of the partnership, where necessary calling upon the partners for contributions.
• They shall settle with the partners debts which they hold against the partnership and restore to partners property whose use only
was contributed to the partnership.
 Cont….
• Art. 269. – Restitution of contributions.
1. A partner who has contributed property may not claim it back in kind.
2. He shall have a claim to the value of his contribution as accepted in the partnership's accounts.
3. If the value has not been so fixed, restitution shall be made on the basis of the actual value at the time the
contribution was made.
Art. 270. – Distribution of profits and losses.
• Where there is a surplus after all claims have been met and contributions returned, the surplus
shall be distributed among the partners.
• Where the assets are insufficient to repay contributions after payment of debts, expenses and
advances, the loss shall be distributed among the partners.
• The distribution of profits and losses is to be made among the partners in equal shares, where no
other proportion has been specified in the partnership agreement.
• The liabilities of a partnership are to be paid out of partnership assets in the following order:
 Cont….
• The liabilities of a partnership are to be paid out of partnership assets in the following order:
1. Amounts owing to creditors other than partners [Art 268(1)];
2. Amounts owing to partners other than for capital and profits, and restoration of properties whose use only were
contributed to the partnership [Art 268(2)];
3. Amounts owing to partners for capital [Art.269)];
4. Amounts owing to partners for profits [(Art 270(1)].
• The partners may by agreement among themselves change the internal priorities of distribution (number 2, 3,
& 4) but not the preferred position of third parties (number 1)
• In addition, Art. 270 provides that, in the absence of any contrary agreement, each partner shall have equal
share in the profits and surplus remaining after all liabilities ( number 1,2, and 3) are satisfied and must
contribute toward the partnership losses according to his share in the profits. Thus, the proportion in which
the partners bear losses depends not on their respective capital contributions but on their agreement. If no
specific agreement exists, losses are borne in the same proportion in which profits are shared.
• If the partnership is insolvent, the individual partners must contribute their respective share of the losses in
order to pay the creditors (Art. 268(1)).
 UNIT FIVE: Joint Venture (JV)

• A JV is a grouping of people arising out of a partnership agreement, which is also

known as a JV agreement in which two or more persons combine their labor and/or
capital for the purpose of carrying out economic activities and participating in the
profits and losses arising out thereof ( Art.271 cum 211).
• The JV is the simplest form of BO.
• Although JV can hardly be adapted to industrial enterprises, commercial transactions in
which great amount of capital are involved are often dealt with by JVs.
• Large organizations often investigate new markets or new ideas by forming JV.
• JVs have the following merits:
1. Transactions or projects can remain secret by virtue of the secretive nature of the BO;
2. JVs are exempted from registration, unlike the remaining legal forms of BO;
 Characteristics of joint ventures

• It is subject to the general principles of law relating to partnerships [Art.271]. Exceptions to the application of
partnership principles to JVs include the following:
• A JV is not made known to third parties. What is more, a JV agreement need not be in writing and is not subject
to registration (Art.272)
• A JV does not have legal personality [Art.272 (3)]. Thus, it is not going to be considered as a legal entity. That is
to say, a JV may not have a firm-name; may not enjoy ownership right over the capital; may not incur liabilities;
may not have a head office; cannot sue or be sued in its firm-name; cannot be declared bankrupt.
• ([Art.219 (1)] also, sub-art (1) of Art. 272 provides that a JV is not made known to third parties. Nevertheless,
where a JV is made known to third parties, it shall be deemed, insofar as such parties are concerned, to be an
actual partnership [ Art. 272(4)]. That is, in case third parties happen to be aware of the existence of a
commercial JV, it will be presumed to be a de facto general partnership. It shall be deemed to be a GP, because it
is commercial. And it is a de facto BO, because it has not been registered.
• Since a JV has no legal personality, ownership right over the capital contributions shall remain with individual
contributors in the absence of an agreement to the contrary ( Art.273). The JVs will merely put certain goods or
assets at the disposal of the manager, who does not become the owner except in the case of fungibles, especially
cash.
 Cont…
• If the manger acquires goods with the funds placed at his disposal by the JVrers, he retains ownership
of these goods but is obliged to account to the JVrers for his acquisitions, and if he resells these goods
at a profit he must share the profit with the ventures.
• Just in case the manager goes insolvent, the goods placed at his disposal by the JVs do not form part
of the assets of the bankrupt manager and hence each JVrer may reclaim his contribution. Being the
owners of their contributions, the JVrers may freely transfer them to third parties. Finally, each joint
venture takes back the assets which he placed at the disposal of the manager if he still has them in
kind upon dissolution.
• The JVs may conclude a contrary agreement as regards ownership of their contributions. First, they
may provide for transfer of title over their contributions to the manager. Therefore, the manager will
become the owner from the moment the JVrers explicitly or implicitly show that they want to transfer
ownership. In case of cash contributions, the manager becomes owner thereof. Any way, the manager
is duty-bound to use the goods placed at his disposal exclusively for the business purposes of the JV.
Second, the JVrers are at liberty to provide for a regime of co-ownership pertaining to their
contributions, thereby rendering each venture a co-owner of the common property.
 Management
• A JV may be managed by one or more managers, who need not be JVrers. Many times, the manager is a JVrer.
• In the absence of an appointed manager, each JVrer shall have the status of a manager.
• Where there is a statutory manager, his/her powers should be specified in the MOA. But, a statutory clause restricting the powers of
the manager, may not be set up against third parties. This is so, because the MOA, otherwise known as JV agreement, is not required
to be registered. And, as such, third parties are divested of the opportunity to have access to such information. Furthermore, a
statutory manager may not be revoked without good cause (Art. 275)
• The manager enters into legal relationships with third parties in his own name. Acts of the managers can be set up against the JVrers
themselves. For instance, if he sells for his own benefit a good given him by a JVrer, the sale of the good cannot be challenged unless
the purchaser knew the manager was exceeding his powers. But even in this case the burden of proof will be on the JVrer-owner to
show that the manager knew of the situation. If he cannot show this, the JVrer-owner only has an action for damages against the
manager.
• With regard to the JVrers, the managers are duty-bound to act within the scope of powers specified in the JV agreements. As for the
rest, he acts in his own name and not in the name of the JV because the organization does not have legal personality.
• The JVrers who are not appointed to be managers enjoy the right to supervise the work of the manager. They may not actively
participate in the external management, but in case they do participate they are jointly and severally liable with the manager.
• JVrers who are not managers and who deal with third parties can only do so in their own name.
• A manager is obliged to account to the partners. Any provision relieving the manager from this duty shall be of no effect. [Arts.276-
277]
 Dissolution
• Art 278 sets out various grounds for the dissolution of JVs. These are:
• The expiry of the term fixed by the MOA unless there is provision for its extension;
• The completion of the venture:
• Failure of the purpose or impossibility of performance;
• A decision of all the partners for dissolution taken at any time;
• A request for dissolution by one partner where no fixed term has been specified;
• Dissolution by the court for good cause at the request of one partner;
• The acquisition by one partner of all the shares;
• Death, bankruptcy, or incapacity of a partner, unless otherwise lawfully agreed;
• A decision of the manager, if such power is conferred upon him in the MOA.
Expulsion of a partner in lieu of dissolution
• According to Art 279(1) the court may grant an order for of the expulsion of the wrongful JVrer in lieu of dissolution upon
application by the other JVrers, where dissolution is requested for reasons attributable to one JVrer. Such expulsion could
also be provided for in the MOA (Art. 279(2)). A person who is expelled is entitled to be paid what is due to him on the day
of expulsion.
 GENERAL PARTNERSHIP (GP)

• A GP is the typical partnership form.

• Partners in a GP, as per Art 280(1) of the Code are, “personally, jointly, severally and fully liable as between themselves and to
the partnership for the partnership firm's undertakings.” The same sub-article further stipulates that “Any provision to the
contrary in the partnership agreement shall be of no effect with regard to third parties.” Thus, it can be argued that a
statutory clause relieving the partners or some of them from joint and several liabilities, if any, may only be effective as
between themselves.
• Partners in a commercial GP have the status of traders [Art. 280(2)].
• GPs shall have firm-names. The firm-names must contain at least the names of two of the partners accompanied by the phrase
“GP. The firm-names may not contain names of persons who are not partners [Art. 281(1)]. Sub-art (2) and (3) of Art 281
regulate situations in which a person whose name is mentioned in the firm name ceases to be a partner and or ,without being
a partner, allows his name to be mentioned in the firm-name. In these cases, the person is going to be liable as a partner.
Contributions
• The partners must make contributions, which can be in cash, kind, debt, and skill. If a partner wishes to make property
(corporeal) contribution, he can either convey the corporeal good or its use only, while retaining his title. This has to be
specified in the partnership agreement. In the absence of such stipulation, the issue will be resolved according to the
circumstances, having regard to the partners’ opinion as well as the usual partnership practice, so long as the law does not
provide for a presumption.
 Cont…
Transfer of shares
• In principle, a unanimous vote of the partners is required in order that a share belonging to a partner is assigned or
transferred to an outsider and thereby he becomes a partner of the GP firm. Nonetheless, a share may be transferred or
assigned to a third party and thereby the latter is rendered a partner in the strictest sense of the term by virtue of a
decision taken by a majority vote of the partners to the same effect [Art. 282(1) and (2)].
• In the absence of a contrary agreement by the firm's creditors, a partner whose share has been transferred or assigned,
as the case may be, is going to be liable for the firm's debts up to the date of assignment or transfer [Art, 282(3)].
• But differently, the transferee or assignee has limited liability for whatever debts and obligations the firm incurred prior
to the transfer or assignment.
• Beneficial interests in shares may be assigned or transferred, in exchange for a value or for free, to a third party without
the partners’ unanimous or majority vote requirement as the case may be. The transferee or assignee, for example, being
creditor or the partner, is entitled to receive only the share in the profits belonging to the debtor partner. Since such
transfer or assignment does not render the transferee or assignee a partner he “has none of the rights of a partner.”
[Art.283].
• Such rights include the right to check the state of the firm's business, to consult the books and papers of the partnership
and to draw up a statement of the financial position.” [Art.248] In addition, a partner has the right to require the
management report to be prepared in accordance with Art 249 of the Code.
 Memorandum of Association and
Registration
• A GP arises out of a partnership agreement, otherwise known a MOA.
• In order for the MOA to be valid, it must be reduced into writing.
• Also it must meet the legal requirement as the minimum contents listed in Art 284, which include the name,
address and nationality of each partner; the firm-name; the head office and branches, if any; the business
purpose of the firm; the contributions of each partner, their value and the method of valuation; the services
required from persons contributing skill; the share of each partner in the profits and in the losses and the
agreed procedure for allocation of the same; the managers and agents of the firm; and the period of time for
which the partnership has been established.
• The firm is presumed to be formed as between the partners, insofar as the MOA has been drawn up and
signed and comes into legal existence only when an entry into commercial registry and deposit of two copies
of the MOA along with all complementary documents are made, without the need to have notice published in a
newspaper empowered to publish legal notices [Art.8(1) of Procl No. 67/97, as amended]
• Accordingly, once the partners in a GP have gone through the registration and deposit procedures, the firm is
said be a legal person, which has to do with the enjoyment of rights and obligations. For instance, it enjoys
ownership right against the partnership property; has the right to sue and be sued in its firm-name [Art. 286].
 Powers of Managers
• Managers of a GP may, in accordance with the law, act for and bind their firm [Art 289(1)]. They assume management responsibilities and
powers in the partnership business. But insofar as their powers are not unlimited, attempts shall be made to delimit the scope of such powers.
Scope of the Powers of Statutory Managers
• More often than not, there will be a stipulation in the partnership agreement specifying the powers of the manager. Through registration, third
parties become aware of the scope of the powers of the managers appointed in the partnership agreement. Also, any restriction on the powers
of a manager should be entered in the commercial register. [Art 289(2)]. In view of the foregoing, a problem arises where the manager exceeds
his powers. The title regulating GPs does not incorporate an express solution to the above problem, unlike Art 242 of the code, which stipulates
that: “ where a manage exceeds his power, the rules relating to unauthorized agency shall apply.”
Where the Partnership Agreement Fails to Specify the Powers of the Manager
Implied authority
• The managers, whether employees or partners, are agents of the firm. Hence, there exists the typical agent-principal relationship between the
manager and the firm. Art 2202(1) of the Civ C stipulates that “where the scope of the agency is not expressly fixed in the contract, such scope
shall be fixed according to the nature of the transaction to which it relates.” To apply this provision to the instant case, it can be re-read as
follows: “ where the scope of the powers of the manager is not expressly fixed in the partnership agreement, such scope shall be fixed
according to the nature of the business to which it relates.”]
• Art 295 renders Art 235 applicable to GPs. A contrario reading of Art 235 reveals an important standard that enables us to determine the power
of the manager whose scope is not specified in the MOA, normally the standard of the normal partnership practice. Therefore, a cumulative
reading of Arts 2201(1) of the Civ C and 235 of the Com Code would seem to suggest that the powers of the manager can be determined by
implication from the nature of the business according to the usual or normal partnership practice of the locality in which it is situate.
 Cont…
• Accordingly, the business purposes clause of the MOA constitutes a good starting point. For
instance, if the business purpose of a GP firm is warehousing, the firm's usual/normal business
activities cannot be carried out unless the manager has the power to issue warehousing receipts.
The extent of implied authority is generally broader for partners than for ordinary managers.
• The character and scope of the partnership business and the customary nature of the particular
business operation determine the scope of implied powers. For example, each partner in commercial
GP that has goods in inventory and makes profits buying and selling those goods has a wide range of
implied powers to borrow money in the firm-name.
• In a GP, partners can exercise all implied powers reasonably necessary and customary to carry on
that particular business. Some customarily implied powers include the authority to make warranties
on goods in the sales business, the power to convey real property in the firm-name when such
conveyances are part of the ordinary cause of partnership business, and the power to enter
contracts consistent with the firm's regular course of business.
• If a partner acts within the scope of authority, the partnership is bound to third parties.
 Cont…
Apparent authority : This is a situation where partnership, by its act or failure to act, caused a third party to believe that the person with whom he was dealing was authorized to act on behalf of the
principal. Technically speaking, this is a situation where the partnership masked the manager with an apparent authority. In this case, both the manger and principal are jointly liable. The manager would be
exempted form liability in cases where he acted in good faith, not knowing the reason by which his authority has come to an end.

Several Managers

• Art 288(1) provides that “where all the partners are managers, or where several persons have been appointed managers and their duties have not been specified or it has not been specified that they
act jointly, they may each carry out acts of management.”

• Art 2204 of the Civ C defines “ acts of management” as “acts done for the preservation or maintenance of property, leases for not exceeding three years, the collection of debts, the investment of
income and the discharge of debts.” “Sub-art (2) of the same stipulates further that” the sale of crops, goods intended to be sold perishable commodities shall be deemed to be acts of
management.”

• Each manger may object to dealings contemplated by other managers. And such objection shall be decided by a majority vote of all the partners. In cases where there are significant differences in the
amount of contributions of the partners, majority vote of the partners may not be a settled issue. Since a contrary provision is not to be found in the rules on GP, Art 234(2) may be extended to apply
to GP. And the partnership agreement may provide that majority holding in the partnership. With respect to a statutory clause providing for the separation of duties of managers, Art 288(2) provides
that “such separation shall only affect third parties where it has been entered in the commercial register or if it is shown that the third parties were aware of such separation.”

Employee Mangers : An employee manager of a GP is required to observe strictly his contract of employment. A manager who acts outside the scope of his employment shall alone be liable, as he cannot
bind the partnership. If the contract of employment goes to the extent of reducing the powers of the manager below what he as a manager is expected to perform in the circumstances of his case, it ends up
in being a restriction within the meaning of Art 289(2) of the Com Code, and, as such, should be entered in the commercial register to be invoked against third parties, or such third parties should be
actually aware of such a provision.

Liability of Partners :Art 294 provides that “No action may be taken against individual partners for debts due by the partnership until after payment has been demanded from the partnership.” The
proviso clause allows the creditors to bring a direct action against partners for the repayment of fictitious dividends which they have received. The concept of good faith, as can be seen, has no place in the
case of the GP. This is so, because, in the GP, which is a BO with few members, it is difficult to believe that partners could receive fictions dividends when the accounts are constantly at their disposal and
when the members are both judge and parties when determining the distribution of the profits.
 LIMITED PARTNERSHIP (LP)
• A LP consists at least one general partner and one or more limited partners. The general partners assume management
responsibility of the partnership and, as such, have full responsibility for the partnership and for all the debts of the partnership. In
other words, the general partners, unlike limited partners, are personally liable to the partnerships creditors. Thus, at least one
general partner is necessary in a limited partnership so that someone has personal liability. [Art. 296 and Art 300]
• The formation of a LP must be by a written MOA signed by the partners and registered by the official in charge of the commercial
register.
• The MOA, in addition to the particulars required by Art 284, must contain a clause indicating the identity of the general partners as
well as the limited partners. [Arts 298 and 299]
• A LP shall have a firm name, which must contain the names of the general partners accompanied by the words LP. In case a limited
partner allows his name to be included in the firm-name, he shall be liable to third parties in good faith as he were a general partner.
[Art.297]
• Art 30(1) provides that the creditors of the partnership may have a direct action against the limited partners to require them to pay
up any part of their contribution which they have not yet paid. Sub-Art (2) of the same exempts the limited partners from having to
repay fictitious dividends received in good faith on the basis of an approved balance sheet.
• The concept of good faith has a prominent place here, as long as limited partners remain in the dark, without a voice in the
management and being likely to be misled by the managers, and being without the means to check any of the statement made by
them. When the balance sheet is prepared regularly they can legitimately believe that the profit shown is a real profit and that the
dividends they receive are not fictitious.
 Cont….
• Sub-Arts (3).(4), and (5) of the same provide that limited partners may never take part in external management and give third parties
the illusion that they are dealing with partners who are fully, jointly and severally liable.
• The reason why a limited partner is prohibited from acting as a manager even under a power of authority is that it is dangerous to
allow them to act as a manager, because it leads to confusion as to the legal status of the partner in his relations with third parties.
Sub-Art (4) provides us with a list of acts which the legislature deems to be not acts of management and, as such raise no question as
to the status of the limited partners. Consequently, limited partners can conduct the following activities without forfeiting their
privilege of limited liability. These are:
• (a) Consultation with co-partners
• (b) Dealings with the firm
• (c) Investigation of managerial acts
• (d) Advising and counseling to the firm
• (e) Giving permission to do acts outside the manager's powers
• Subject to the limitations that have been discussed, limited partners have essentially the same rights as general partners, including
the right of inspection of the books of the firm and may call for the accounts; they may be employed in the firm and bind themselves by
contracts of employment [Art.301 (5),(6)]Sub-Art (7) stipulates that “unless of otherwise agreed, nothing affecting limited partners
shall be a ground for dissolution.” That is, in the absence of a contrary agreement death, incapacity, or bankruptcy of a limited partner
does not constitute a ground for dissolution.
• With regard to assignment of shares pursuant to a cumulative reading of Art 302 and 303, shares may be assigned by the consent of
the managers, the general partners, and the majority of the limited partners.
 Share Companies
• The sole proprietor and partnership have certain limitation and disadvantages which make them
unsuitable for large scale business operation with business opportunities growing at a faster pace
as a result of discovery and exploitation of natural resources.
• The company form is the right answer to over come the short comings or limitations of the sole
proprietorship and partnership both of which can not be expected to exploit the vast business
potential thrown up by the tremendous technological progress in all fields of human activity.
• SC is defined as (a) one which does not have restriction on maximum number of members (b)
inviting public to subscribe for shares or debentures of the company (c) transferability of shares
are free.
• A minimum of five persons are required to form a share company.
• On the other hand, PLC is one which, by its status: (a) restricts the right of its members to transfer
their share is (b) The number of members limited to 50 and (c) No invitation to the public to
subscribe for any shares or debentures of the company. A minimum of two members are required to
form a PLC.
 Distinction between Private
Limited and Share Company
• Membership: - only two persons are required to form a PLC while a SC requires a
minimum of five members to start with. There is no limit on the maximum
number of members in SC. Whereas a PLC can have only 50 members at most.
• Directors: - A PLC is managed by one or more managers while SC is managed by
directors whose minimum number shall be three.
• Public subscription: - while a SC can invite public to subscribe to its shares and
debentures, a private limited company can not go to public to raise its capital.
• Prospectus: - A SC which goes to public to raise its capital is required to file a
prospectus while a PLC is exempt from this requirement because it can not invite
public to subscribe to its capital.
• Minimum subscription: - in SC all capital must be subscribed and 25% of the capital
must be paid-up before registration. PLC be registered by fully paid-up capital.
 Some Merits of Company
• Financial Resource: - If a business venture is to be promoted on a large scale, none of the partnership form of
BO can prove equal to the task of raising funds to the required level. It is only the company forms both PLC and
SC, which can mobilize huge funds, required by big business. This is possible mainly because of the large number
of members who can own the company by subscribing to its capital in small and affordable quantities.
• Another favorable point is that a SC can collect money from numerous small investors by issuing securities (Share
and debentures) in smaller denominations and with different but with attractive features.
• Thus, a SC and PLC are much more capable of raising large capital than any of the rest. In fact, the SC and PLC
are comparable to an ocean and a sea respectively while the rest all like a small river or canal in so far as the
financial resources and catering to the needs of society are concerned.
• Limited liability: - SC became more popular with investors these days it is largely because of its limited liability
clause only. Other factors like profitability of the business venture and confidence in the management etc. also,
play their part. In such companies the shareholders is not liable to pay anything more than the face value of the
shares held by him.
• Even when the company becomes insolvent he will not be called upon to pay from his personal property to service
the debts of the company. So, when compared with the partnership where the liability in unlimited, the company
form is far more preferable for small investor because of the “low-risk and high return factor.”
 Cont…
• Scope of growth: - unlike the partnership and sole proprietorship forms of BO, where
the growth is stunted for lack of adequate funds, the company form of organization
need not suffer for lack of financial resources with a huge capital at its disposal,
collected from investors spread all over the country and even abroad also, the company
can grow and expand at a rapid pace and reach the break-even point faster than
expected.
• Professional management: - in order to achieve the targeted rates of growth and
expansion of a company, competent and professional management of the company is no
less important than the availability of adequate finance. One great advantage of
company form of BO is that it allows for insulation of management from ownership.
• The management of the company can be left to a group of professionals who, with their
competence, specialized knowledge or skills, qualifications of training, can show better
results in production, distribution or marketing etc.
• The over all performance of the company and the profitability of the business venture
can greatly improve with professional management of the company.
 Cont…
• Stability of the company: - for the success of any business venture, continuity and stability of business are
equally important and neither can be self-supporting without the other. With its perpetual succession of
ownership theory, only the company form can ensure both continuity and stability whereas the partnership
form may have to close the shop due to the death of sole trader, a partner or die to any other reason including
the internecine quarrels amongst the partners it is mainly because of these twin factors (continuity and
stability ) that the company enjoys the confidence and support of a large number of investors and creditors
who look forward to a fruitful association with the company for a pretty long period.
• Positive social benefits: - a company is beneficial not only to its members, creditors and employees but also
to the public at large. It supplies goods and services at a competitive rates by introducing new and
sophisticated technologies and by exploiting the natural resources in a most efficient and economic manner.
That part, it provides employment opportunities both direct and indirect to the needy and competent persons
in the society.
• It also helps channelize the small savings of people into productive investments there by serving the twin
objectives of diffusing the business risks and democratizing or socializing the business ownership. It
contributes to the exchequers also handsomely by way of direct and indirect taxes and duties. These social
benefits make the company form far more desirable than the partnership form of BO
 Share Company
• Limited liability: - limited liability of members is one of the most common characteristics of SC. SC is a separate legal entity. It is the owner of its assets and liable to pay its liability (Art
304(1)). In other words liability of the members is limited. No member is liable to contribute anything more than the nominal value of the shares held by him. The privilege of limited
liability for business debts is one of the important advantages of doing business under SC since the liability will not extend to the private property of the member, unlike that of
partnership.
• Perpetual succession: - unlike partnership SC will not be dissolved by the death or incapacity of its members. It is an entity with a perpetual succession. Its life is not measured by the
life of any member. It is independent of the lives of its members. Members may come and members may go, but the company continues its operation unless it is wound-up.
• Transferability of shares: - Even though it is possible to restrict free transfer of shares in the MOA (Art. 333(1). As a general principle shares of SC are freely transferable and can be
sold or purchased in the share market. Transferability of company shares is an added advantage both to the institution of the SC as well as to the investor. The SC’s share capital becomes
a permanent and stable feature of the company because the shareholders can not with draw any thing out of it. The shareholder gets a marketable security.
Founders (Art. 307)
• Before a share company can be formed, there must be some persons who have an intention to form a SC and who take the necessary steps to carry that intention into operation. Such
persons are called founders.
• The founder is a person who brings a SC into existence. He/she is one who undertakes to form a SC with reference to a given object and to set it going and who takes the necessary steps
to accomplish that purpose. The founders decide the scope and business of the SC. They prepare the necessary documents. They make arrangements for advertising and circulating the
prospectus..
• SC may have several founders.
• A founder may be an individual or body corporate. One existing body corporate may be founder of new SC.
• A person who is not member of the newly formed SC, but acts in a professional activity (such persons being solicitor, engineer, accountant or valuer) for the founding of the company are
also founders of the SC.

Founder under Art. 307 are the following:

• Founders are persons who sign the MOA and subscribe the whole of the capital or.
• where the company is formed by issuing shares to the public, founders are persons who sign the prospectus, bring in contribution in kind persons who are allocated special shares in the
profit or
• Any person outside of the company who initiated the plans of facility the formation of the company
 Roles, Rights and Liabilities of
Founders
• Roles: - As to the exact position of the founders the code is silent. They are not agents because there is no principal.
However, founders from the moment they start to act with the name of the company they stand in a fiduciary position to
wards the SC under formation. They have the power of creating and modifying the company.
• They may enter into commitments with third parties in the name of the company, but they may be refunded after the
company has taken over this commitments and the company may only take over if the commitments taken by the founders
were necessary for the formation of the company (Art 308/2/)
• Rights:-The nature of the founders work in the formation of the SC call for the considerable skill for which he should be
paid a share which shall not exceed one fifth of the net profits in the balance sheet (Art 310). Such amount must be stated
in MOA. In the absence of such statement, a founder has no right against the company for his payment.
• If it is stated it is presumed that there is a contract which gives the directors power to pay the preliminary expenses out
of the company's funds. Such benefit may not extend for more than three years and the founders have no any other right
than the one stated in this paragraph.
• Liabilities: - concerning liabilities of the founders the law does not stat transfer of such liabilities as stated under Art
309/1/.
• The violation of those acts may lead into the violation of stated provision and this in turn may result into criminal liability
and criminal liability is borne by the doer personally not to be transferred to third party. If the required capital and
subscription is not fulfilled (Art 309/1/a/) it is violation of law.
 Memorandum of Association
Memorandum of association: -
• It is a document which sets out the constitution of the BO and is really the foundation on which the structure of the BO is based.
• It contains the fundamental conditions upon which alone the BO is allowed to be incorporated.
• Its five clauses provide the basic features of the BO constitution. BO may pursue only such objects and exercise only such powers as are
conferred expressly in the MOA or by implication there from, i.e., such powers as are incidental to the attainment of the objects. A BO can not
depart from the provisions contained in its MOA, however, great the necessity may be. If it does, it would be ultra virus the BO and therefore
wholly void.
• It defines its relation with the outside world and the scope of its activities. It defines as well as confines the powers of the BO; it not only shows
the object of its formation but also the at most possible scope of its operation beyond which its actions can not go. Inside that area the
shareholders may make such regulations for their own government as they think fit.
• After registration of the BO, the MOA becomes a public document (Art 92) while the MOA must comply with the provisions of the CC, all other
documents of the company must comply with the MOA.
• Purpose of memorandum: - The MOA is a public document available for inspection. It services two purposes:
 The intending partner/ shareholder, who contemplate the investment of his capital shall know within what field it is to be put at risk. Thus, he
can find out from the MOA the field in, or the purpose for which his money is going to be used by the company and what risk he is taking in
making the investment.
 Any one who deals with the company shall know without reasonable doubt whether the contractual relation into which he contemplates
entering with the company is one relating to a matter within its corporate objects. In short, the MOA enables the shareholders/ partners,
creditors and all those who deal with the company/ to know what its powers are and what the range of its activities is.
 Contents of memorandum
• Name clause: - A company being a legal person, must have a name to establish its identify. The general rule is that a company may be
registered with any name it likes. But no company registered by name which in the opinion of the registration office is undesirable and in
particular which is identical with or which too nearly resemble the name of an existing company. A company which carries on or proposes to
carry on business under a name calculated to deceive the public by confusion with the name of an existing concern commits civil wrong of unfair
trade computation and can be restrained by injunction from doing so.
• Every company must write the word, SC, PLC, LP after its name
• Registered office clause: - this clause states the name of the state where the registered office of the company is situated. The registered office
clause is important for two reasons. Firstly, it ascertains the domicile and nationality of the company. This jurisdiction of a court is also
determined with reference to the registered office of the company.
• Secondly, it is the place where various registers relating to the company must be kept and to which any communications and notice must be sent.
A company need not carry on its business at its registered office. There is no bar to having a registered office of a company in regional state and
carrying on business in different state or in overseas countries.
• Object clause: - this clause is the most important clause in the MOA of a company, because it not only shows the object or objects for which the
company is formed but also determines the extent of the powers which the company can exercise in order to achieve the object or objects.
Stating the object of the company in the MOA is not a mere legal technicality but is a necessity of great practical important. It is essential that
the public who purchase its share should know clearly what are the objects for which they are paying and which they want to encourage.
• To give this information the statement of the objects should be clear. It must not be too vague and too general and too wide for in that case it will
defeat its very purpose and object. The object clause in the MOA is construed positively and negatively. Objects not mentioned in it are not the
object of the company. But this clause should not be construed too strictly and the company may do any thing which is fairly incidental to the
main objects specified in it
 Cont…..
• Liability clause: - This clause has to state the nature of liability that the members incur.
In the cause of a company limited by shares, the members are liable only to the amount
unpaid on the shares taken by them. If his shares are fully paid up his liability is nil.
• By this clause member knows the extent of his financial liability to the company as long
as he remains as members. Any alteration in the MOA compelling a member to take up
more shares, or which increases his liability would be null and void.
• Capital Clause: - The MOA of a company limited by shares must state the prescribed
and paid-up capital and nominal value of each share. The usual reason to state the capital
in the MOA is “the capital of the company is birr 100,000 divided into 1000 shares of Birr
100 each” this amount lays down the capital of the company beyond which the capital
can not be reduced without altering MOA. The MOA has to be signed by each subscriber
in front of officer of notary office.
 Cont….
Memorandum -
• MOA is public document.
• MOA is required to be registered for the formation of the company.
• MOA is the charter of the company and defines the scope of its
activities.
• MOA defines the relation of the company with outside world.
• MOA is a supreme document of the company.
• A company cannot depart from the provisions contained in its MOA, and
if it does, it would be ultra virus the company.
 Cont…
• Effect of Memorandum:- The MOA shall, when registered bind the company and the members thereof to the
same extent as if they respectively had been signed by the company and by each member and contained
covenants by the company and each member to observe all the provisions of the MOA. The MOA bind.
• Members to the company: - The MOA constitute a contract between the company and each member. Each
member of the company is bound to observe the various provisions of the MOA a as if he had actually signed the
same. The company can therefore, enforce articles of association against any member.
• Company to the members: - The Company is bound to the members by the various provisions contained in the
MOA in the same way as the members are bound to the company.
• The company can, therefore, exercise its rights as against any member only in pursuance of and in accordance
with the MOA; every member is entitled to sue the company to prevent any breach of the articles which would
affect his right as a member of the company. Thus, where a right is enforced by the articles on shareholder to
record his vote at a company meeting the chairman of the meeting cannot deprive him of his right.
• Similarity, a shareholder can enforce his right to recover dividend which has been declared or receive notice of
any general meeting in pursuance to the articles, if he is denied any of these right by the company.
 Cont…
• Members inter se: -
• Company to the outsiders: -
• The term insider means a person who is not a member of the
company. Even a member will be regarded as an outsider and he
will not in a position to enforce a right against the company if he
enjoys the right in the capacity of a solicitor or director and not in
the capacity of a member.
• The purpose of the MOA is to define the position of the shareholder
as shareholder, not to bind him in his capacity as individual.
 Constructive Notice of Memorandum
(Art 92)
• The MOA of every company are required to be registered with registration of office. The office of the
registrar is a public office and consequently the MOA on registration become public documents. They
are open and accessible to all. This document is open for public inspection against payment.
• Every one dealing with the company, whether a shareholder or an outsider is presumed to have read
the documents. This deemed knowledge of the two documents and their contents is known as the
constructive notice of MOA.
• The parties dealing with the company must be taken not only to have read these documents but also to
have understood them according to their proper meaning. When a person deals with a company in a
manner which is inconsistent with the provisions of the MOA, or enters into a transaction which is
beyond the scope of the powers of the company, he must take the consequences in respect of such
dealings.
• The doctrine of constructive notice of the MOA, however, is not a positive doctrine but a negative one.
It does not operate against the company. It operates only against an outsider dealing with the company.
It prevents him from alleging that he did not know that the MOA rendered a particular act ultra virus
the company.
 Cont…
• Doctrine of indoor management: - The doctrine of indoor management is an exception to the rule of
constructive notice. If A person dealing with a company enters into a transaction with the company which is
ultra virus of the MOA, he can not treat the transaction as binding on the company.
• On the other hand, if the transaction appears to the proper one, when compared with the MOA, it would be
grossly unfair if the company could escape liability under it by showing that there was some irregularity in
the conduct of the company's affairs leading into the transaction, when the other party did not know of the
irregularity and had no means of discovering it. This rules is described as the “Doctrine of indoor
management”.
• Persons transacting business with the company are deemed to have notice of what they would have
discovered by making a search at the office of the registrar of companies, and they would be stopped from
asserting that they had not read the documents. But such persons are not deemed to have notice of, nor are
they under a duty to inquire into the internal proceedings of the company.
• Thus the outsider is presumed to know the constitution of a company, but not what may or may not have
taken place within the doors that are closed to him. The doctrine of constructive notice protects the company
against outsiders; the doctrine of indoor management seeks to protect outsiders against the company.
 Deposit and Registration (Art
323)
• The following documents must be deposited at the office of registrar that is Ministry of Trade and Industry at Federal
level and Trade and Industry Bureau's at regional level.
• The memorandum of association (MOA)
• The prospectus, if any
• The minutes of the subscribers’ meeting and all complementary documents.
• These documents are accompanied by an application demanding the registration of the company in the books of
commercial register. The registration is of capital importance, for the company does not require legal personality until it
has been entered in the registry of commercial registration. So, company acquires legal personality as soon as it is
entered in the registry of commercial registration. This means that it is there up on it acquires the legal capacity as
provided by Law. These include:-
• A name specified in its statutes
• A registered office, which is the main address where the management of the company is located. This registered office must be specified
in the statutes.
• The power to do acts with legal effect: - In that it may acquire property and may acquire or become subject to rights and liabilities. The
assets of the company are therefore separate from the assets of its members, and the latter have rights in the company but not directly
in its assets.
• The power to sue and to defend legal proceedings against it.
 Amendment
• A company has a statuary right to amend its MOA by extra general meeting of the shareholders
.Procedure:- The general provisions applied to the shareholders meeting (Art 388-416) is similarly applied to the extra general meeting that is
called for the amendment of the MOA. The provision of Art 422-425 in also applied to the extra general meeting called for the amendment of
the MOA.
• For the amendment of the nationality and increase of the shareholder's investment in the company a rigid procedure is to be followed and
strict compliance of the procedure is demanded by law. So, such amendment can only be adopted where the holders of all shares are
personally present or represented and the vote is unanimous.
• Thus, a company can amend its statute at any time by passing special resolution. The basic requirement is that the power of alteration must
be exercised in good faith in the interest of the company. Therefore, the company exercises its power of amendment subject to the following
limitations.
• Must not be against the provisions of law. The amendment must not authorize any thing expressly or impliedly forbidden by the commercial
law. For example, the amendment cannot authorize a company to pay dividends out of capital
• No increase in the liability of members no amendment may be made in either the MOA compelling a person who is a member at the date of
the alteration to take or subscribe for more shares or increase his liability to the company unless he agrees to such amendment.
Amendment by special resolution only. Amendment will be made only by a special resolution of extraordinary meeting as stated in Art 422-
425 of the Com C.
• Should not cause breach of contract. A company can not make by amendment its statute escape liability for breach of contract into which it
has entered. It can not plead its altered statute as a defense in an action for a breach of contract. The rights which have already accrued
under the contract can not be disturbed by its amendment.
 Cont…
• Securities
• SC can issue two kinds of securities, equity securities and debt securities
Equity securities
• Are described as the counter part of the shareholders contributions to the capital of the
company and could include common stocks preferred stocks etc.
• They give to their holders pecuniary rights which usually depend on the financial situation
of the company and mainly consist of the right to receive dividends, liquidation profits (if
any), to exercise preferred subscription rights in the context of capital increase.
• It also give to their holders personal rights which allow the shareholder to be informed on
the management of the company and to participate in shareholders’ meetings.
• Equity securities are in real sense shares that are issued by the company.
 Shares
• It is the interest of a shareholder in a definite position of the capital.
• It expresses a proprietary relationship between the company and the shareholder. A shareholder is proportionate owner
of the company but he does not own the company's assets which belong to the company as a separate legal entity.
• It is the interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first
place, and of interest in the second but also consisting of series of mutual covenants entered into by all the shareholders
interest.
• It is a personal estate capable of being transferred in the manner laid down in the MOA.
• It is movable property which can either be mortgaged or pledged.
• It is in corporeal in nature and it consists of bundle of rights and obligations.
• The nature of share can be summed up:-
• Share gives rights and liabilities to the holder
• Shareholders is not part-owner of the company or property of the company
• The share is movable property. The movable property of person can be a “chose in action or” chase in possession”
• Share is goods
 Cont….
Issuance
• When a company is formed, an application for issuance of shares is made by prospective shareholders.
• It is an offer by prospective shareholders. When application is accepted it is an issuance of shares.
• Issuance creates a binding contract between the parties. Till such issuance is made, shares as such do not exist.
• A company issues a share certificate, a document, stating that the person named therein is registered holder of specified
number of shares of certain classes and that they are fully paid-up or paid-up to a stated amount.
• A share certificate has to be issued whether the shares are partly paid-up or fully paid-up. The share certificate enables the
shareholder to deal more easily in the market.
• Particulars that are indicated on the share certificate are the following
1. The name, head office and period for which the company is established.
2. The amount of capital and par value of the share
3. The date of the MOA and of registration of the company in commercial register and the place of registration
4. The serial number of share, its series class, whether it is ordinary or preferential and the kind of preferential share
5. The amount of part payment on shares not fully paid up or a statement that the share is fully paid; and
6. A statement showing whether a share may be transferred to a foreigner.
 Cont….
Forms /Art 325 & 326/
• Forms of shares are either registered in the name of a shareholder or the bearer. Where the bearer shares are not prohibited the holders have always the right to
require that their shares be in registered form.
• The main difference between shares in the bearer form and shares in the registered form is that in the first instance, the issuer does not know the identity of the
persons holding its shares and can communicate with them only by way of press releases, whereas, in the second case the issuer has full access to the
shareholders list.
• Particularly, the shares that are issued in Ethiopia are registered shares, statutes of SC prohibits bearer share from the very beginning and therefore, it is very
difficult to find bearer shares in circulation.
• Shares are issued in their par value. They may not be issued in less than their value. When it is permitted by the statutes it may be issued in greater than par
value and the difference in known as premium.
Classes /Art 335/
• The law empowers the company to issue several classes of share with different rights.
• Mainly there are two classes of shares. They are equity and preference shares.
• Equity shares are shares which are not preference. Equity shareholders get more if the company is prosperous or get nothing if the business of the company flops.
• Preference share /Art 336/ typically confer up on this holders a priority on annual profits in the form, cumulative or non-cumulative preference dividends, of a
preferential repayment right upon liquidation of the company or the right to receive a liquidation bonus. The terms of the preference shares can be established
either in the initial statutes or after words by a decision of extraordinary meeting.
• Preference share, therefore, should fulfill the following
1. It shall carry a preferential right as to the payment of dividend at a fixed rate and
2. In the event of winding up, there must be a preferential right to the payment of the paid up capital
 Rights and duties of
shareholders
• Rights of members of shareholders can be divided into two categories namely (1) individual rights (2) corporate member rights.
Individual rights: Include members’ rights to:
• Participate in annual net profit
• Share in the net proceeds on a winding –up
• vote except preference shares
• Preferential right of allotment of new shares based on shareholder's holding of share /or preferential right of subscription of cash
share in proportion to number of shares held.
• transfer shares subject to any restriction
• inspect the registers, indexes, returns and copies of certificate etc. Kept by the company and obtain extracts or copy thereof
• obtain copies of MOA on request and payment of the prescribed fee.
• receive a copy of statutory report
• remove directors by joining with others
• obtain a copy of the profit and loss account and the balance sheet with the auditor's report
• attend meetings of shareholders, receive proper notices and vote at the meeting
• receive a share in the capital of company and the surplus assets, if any, on the company's liquidation
 Cont….
• Corporate membership rights:- Members have also certain rights as a group. These rights can be exercised only by the majority and not by the
single shareholder or minority shareholders. Corporate membership rights are rights which the member has agreed to submit to the will of the
majority provided that the will is expressed in accordance with the law and statutes. Thus, the shareholders in majority determine the policy of the
company or exercise control over the management of the company.
• With respect to these rights the principle of supremacy of the majority applies (Art 416(1)).However, if and when the decision is contrary to the
statute or law Art 416/2/ confers right to apply to the court to set aside the majority decision within three months from the date of such decision
has been made. Art 391/2/ of the CC confers on members holding not less than one-tenth of the capital of the company right to apply to the court
for the meeting of general assembly of shareholders.
• All money payable by any member to the company under the MOA shall be a debt due for him to the company. In the case of the death of
shareholder, his estate remains liable in respect of his shares.
Temporary Warrants /Art 343/
• These warrants are bearer and registered. There are conditions that are to be fulfilled in order to issue temporary warrants. These are:
• The shares shall be fully paid-up. Temporary warrants in respect of registered shares shall be registered and its transfer follows the same to that
of the registered share. In the case of temporary bearer warrants the transfer is by mere delivery. Share warrants should contain the number of
shares in respect of which they have been issued. Such warrants must state that the bearer of its entitled to the shares specified therein
• A share warrant can be issued only when the shares are fully paid up
• A share warrant is a negotiable instrument
• A share warrant is the share security itself capable of easy transfer
• Coupons for dividends may be attached to the share warrant and dividend in paid to the bearer of the coupons.
 Debt Securities
• Debt securities differ from equity securities in that:-
• holders of debt securities are creditors and rank prior to the shareholders
• debt securities are remunerated by fixed interest where as the income from equity security is uncertain
• only bond issues may be secured by issuers
• debt securities are remunerated before equity securities, and
• debt securities are issued for a defined term and are reimbursed to their holders
Debentures /Art 429/
• Debentures are among debt securities.
• Debenture is a document given by a company as evidence of debt to the holder usually arising out of loan
and most commonly secured by a charge. In the ordinary business sense a debenture is generally
understood to be a document usually but necessarily under seal, acknowledging a debt and securing
repayment thereof by mortgage or charge on the company's property or undertaking, and providing that
until payment, interest will be paid there on at a fixed rate payable usually either half-yearly or yearly on
fixed dates.
 Cont….
• Joint Holdings /Art 344/
• It is possible to hold certain capital of one SC by another.
• Debt Securities
• Debt securities differ from equity securities in that:-
• holders of debt securities are creditors and rank prior to the shareholders
• debt securities are remunerated by fixed interest where as the income from equity
security is uncertain
• only bond issues may be secured by issuers
• debt securities are remunerated before equity securities, and
• debt securities are issued for a defined term and are reimbursed to their holders
 Characteristics of a debenture
• It is in the form of a certificate, like a share certificate. In other words, it is an instrument in writing
• The certificate is an acknowledgement of indebtedness
• It is usually under the seal of the company but it is not necessarily
• It usually provides for the repayment of a specified principal sum at a specified date
• It provides for the payment of interest at a specified rate until the principal sum is paid back. But this is not essential. Interest
may be made payable subject to contingencies of uncertain nature.
• The debentures carry no voting rights at any meeting of the company
• Issuance
• Debentures are issued in accordance with the provisions of the articles, usually by a resolution of BODs. Once a decision is taken
by the board of directors to issue debentures, the next step will be to draft prospectus relating to the issue.
• Debentures may be issued at par, at a premium, or at a discount if permitted by MOA of the company. Debentures unlike shares
may not be issued at a discount without any restriction. The reason is that they do not form part of the capital of the company.
But all sums allowed by way of discount must be stated in every balance sheet of the company until written off.
• Debentures may be redeemable at par, at a premium but their redemption at a discount is not permitted.
• As it is stated under Art 429 of CC, it is issued by SC provided Company's capital is fully paid and if a company has issued a
balance sheet in respect of its first financial year.
 Cont….
• The content of debenture is stated under Art 432. They are the following
a. The company's name, its objects the head office of the company, and the place where the company was registered
b. When the company was formed and for how long
c. The paid-up capital on the date of issue
d. The date of resolution of the general meeting and its entry in the register
e. The serial number and nominal value of the certificate, the rate and date of interest payments and the terms for redemption
f. The amount of the issue and the special guarantors, attaching to the debentures and date of deed setting up such guarantees.
g. The amount of debentures or loan stock issued previously and not amortized, indicating the guarantees attaching thereto. -Where
appropriate the period or periods of time within which debentures may convert their debenture into shares and the provisions for
such conversion.
• Debenture that is issued by the company may not exceed the amount of paid-up capital shown in the last adopted balance sheet. But
such amount may be exceeded if the company's immoveable property is mortgaged and the debentures issued do not exceed two
thirds of the value of the mortgaged or where the excess over paid-up capital is guaranteed an introductory statement is missing.
• By registered securities or security issued or guaranteed by the state and the date of redemption is not earlier than that of
debenture, or
• By government or public authorities annuities
 Forms
• Debenture is always issued in written form. An oral acknowledgement of a debt is not a debenture.
There are two forms of debentures /Art 434 cum 325/
• Registered debentures – A registered debenture is one which is registered in the name of a holder in
the books of the company. It is transferable in the same way as a share or in accordance with the
conditions endorsed on their back, but a transfer to be completed has to be registered with a company.
• These debentures are not negotiable instruments. Interest on such a debenture is payable to the
registered holder or to the order of the registered holders.
• Bearer debentures – A company may issue debentures payable to the bearer. These are negotiable
instruments and the title to them is, therefore, transferable by mere delivery of the debenture to the
transferee.
• In case of bearer debentures, the company keeps no register of debenture holders in respect of them;
the coupon is attached to the bearer debenture for payment of interest and must be presented for
payment to the company's bankers when the date of payment arrives. The company can communicate
with holders of bearer debentures only by advertisement.
 Debenture holders meeting
• Debenture holders’ meeting can be called at any time by the debenture holders’ representatives,
by the BODs of issuing company, or at lest 20% of the debenture holder of the same class (Art.436).
• Debenture holders’ meetings are called and held under substantially the same conditions as to
form and time as shareholders ordinary meetings (Art. 432)
• Debenture holders must be consulted on three types of issues (438)
• On issues pertaining to the performance of the debenture issue such as the appointment, removal
or remuneration of the representatives or any action required to protect the debenture holders ’
interests and give effect to the rights and remedies conferred to the debenture holders under the
terms and conditions of the debenture issue.
• On proposal made by the issues to modify the terms and conditions of the debenture issues (i.e.
waive the guarantees given to the debenture holders, modify interest rates, redemption conditions
or any other term of the issue or post phone the payment of interest). The meeting's decision to
refuse or accept the issuer's proposal is binding on the issuer and the terms and conditions of the
debenture issue can be modified only if the holders’ meeting approves the issuer's proposal.
 Cont….
• On decision made by the issuer's shareholders to (a) modify the purpose or legal form of the
company or (b) issue debenture having priority over the existing debenture. Furthermore, the
debenture holders’ meeting may appoint debenture holders’ representative (Art. 432)
• The term of office and remuneration of debenture holder representatives is determined by the
meeting of the holders. Debenture representative may be dismissed at any time by the meeting.
The authority to represent debenture holders can not be granted to the issuer, its management
or its employee's related companies or to companies guaranteeing the issuer's commitments
(Art. 436(3-6)
• Subject to any limitation prescribed by the debenture holders meeting, the representatives have
the power to carry out any action necessary to protect the rights of the debenture holders (Art
443). They have the right to attend shareholders meetings and have access to the documents
made available to the shareholders under the same conditions as shareholders, but they do not
have the right to vote as debenture holder themselves do not have voting right. Or interfere in
the management of the company's business.
• Corporate Management
• Management of the company is carried on by the shareholders’ meeting and board of directors as well as general manager.
• Shareholders’ meetings
• The proper functioning of any association of persons, large or small, requires that the members of the association come together
from time to time to discuss matters of common interest and to take decisions by common consent or by a majority as may be
possible. Like any others association, a company must also hold meetings for its proper functioning. A company meeting may be
defined as an assembly of persons connected with the company who wish to discuss and decide matters related to it.
Distinguishing between various types of meetings /Art 39./
The meetings of shareholders are classified into general and special
1. General meetings: - are meetings which consist of shareholders or all classes. General meetings are in turn classified into
ordinary and extra ordinary general meetings.
• Ordinary general meeting – This meeting of the shareholders is held once every year to discuss financial and administrative
affairs of the company
2. Extra ordinary general meeting – this is a meeting of the shareholders to consider a particular matter specially amendment of
the statutes
• Special meeting: - is a meeting that consists of shareholder's of particular class to transact business affecting their interest only.
 Procedural rules common to all
meetings
Calling of meetings
• The rules governing of calling of the meetings are laid down in the statutes of the company but subject to the rules of commercial code.
• Meeting may be called by the BODs the auditors, the liquidators or by officer of the court (Art 391/1/).
• In the case of urgency shareholders holding at least one-tenth of the share capital of the company, can also apply to the court for the
appointment of an officer of the court to call a meeting (Art 391/2/).
• Meetings can be called by publication in a legal newspaper notice setting out the name and form of the company, date, times, place and
nature of the meeting and the agenda. In practice, where the companies share are registered the publication of notice in legal newspaper
is often replaced by individual notice of meeting sent to each shareholders by normal postal service sent by registered letter at the
company expense. Any shareholder may also demand notice to be sent to him by registered letter against payment of an expense.
• At least 15 days must elapse the day when the notice of the meeting is published and the date of meeting if a quorum is not present at the
first meeting, and at least eight day must elapse between the dispatch of the notice for a new meeting and the date on which such meeting
is held /Art 395/.
Setting of agenda /Art 397/
• The agenda of the meeting is determined by the person calling the meeting. Meetings can only pass resolutions on the questions set out in
the agenda. If the meeting has to be called for a second time because a quorum is not present on the first occasion, the agenda cannot be
amended for the second meeting. However, meetings may remove any director and appoint other persons to replace them without these
matters appearing in the agenda.
 Cont…
Voting by proxy /Art 398/
• Any shareholder may take part in and vote at meetings either personally or by proxy. Where the shareholder appoints proxy, he may not vote personally. The form of the proxy is
determined by board of directors.
• The place and time of deposit of proxy is also determined by the BODs /Art 402/

Substantial rules common to all meetings

• Right to information
• Shareholders are entitled to be given relevant information in advance of any meeting in order to enable them to take fully informed decisions /Art 406/ Before any annual
shareholders’ meeting, shareholders are entitled to inspect the company's balance sheet, profit and loss accounts, reports of directors and auditors in the three preceding
financial years, minutes and attendance sheets of these meetings etc. The shareholder's inspection rights can be exercised by any shareholder at the company's registered office
or main place of business with the assistance of any expert selected
Right to vote
• Basically each share carries one vote, and the number of votes which any shareholder may cast at general meetings is calculated accordingly (Art 407) However, there are
certain exception to this rule.
• A company can not vote on shares issued by it which it has purchased (Art 400)
• The statutes may limit the number of votes which any shareholder may cast, provided that the limitation applies equally to all shareholders (Art 408)
• Where the interest of shareholder conflicts with the interest of the company, such shareholder may not exercise his right to vote (Art 409/1/)
• Directors may not vote on resolution relating to the directors duties and liabilities (Art 409/3/)
• Every shareholder is free to vote as he wishes. Agreements or resolution restricting the free exercise of the right to vote shall be null and void (Art 389/2/). Shareholder must
exercise their voting rights in the collective interests of all the members of the company, and not in order to promote individual is interest.
• Resolution of the meeting binds all shareholders whether absent, dissenting or having no right to vote. (Art 388/2/). Courts may decide to nullify a decision of the shareholders
meeting when there is evidence that the decision was detrimental to the interest of the company (Art 418/2/) or to the minority or majority shareholders’ interests and was
dictated only by the self-interest of certain shareholders.
 Meetings /Art 390/
• Ordinary general meeting
• Ordinary general meeting can be held only if the shareholders present or represented represent at least one-quarter of the shares of the voting shares. If this
quorum requirement is not met, the meeting must be called a second time, and on that occasion no quorum is required. Resolution is passed at ordinary
meeting by a simple majority of the voter held by the shareholders present or represented. Accordingly, a shareholder who abstains is disregarded (Art 421)
• Ordinary general meetings may take all decisions within the competence of the shareholders, except those which are required to be taken by an extra
ordinary meeting. Decisions made by ordinary meeting mainly concern financial questions (other than alteration of the capital) and matters concerned with
the administration of the company. (Art 419) The most important kind of ordinary meeting is, of course the annual meeting, which must be held within four
months after the end of each financial year (Art 418)
• Extraordinary meetings /Art 425/
• Extraordinary meetings are subject to stricter rules as to quorum and majority than ordinary meetings. At least half of the holders of all shares having voting
rights of the company must be represented at the meeting by shareholders or their proxies, if such quorum is not present the meeting must be called for the
second or third time, and the quorum is reduced to one third, or one tenth respectively. Resolutions are passed at extra ordinary meetings by two-thirds
majority of the votes held by shareholders present or represented.
• An extra ordinary meeting may alter any provision of the company statues. Provided it does not increase the financial obligations of the shareholders, take
away the basic rights of the shareholder, such as the right to transfer his shares of the right to vote at meetings or change. The change of the nationality of
the company or shareholder to increase investment in company needs the present of all holders of all shares having voting right and unanimous voted.
• Special meeting /Art 426
• Unlike meetings which may be attended by all shareholders of any class, special meetings may be attended by only the holders of a particular class of
shares. For example, the holders of preference share, special meetings must be called to approve decisions of general meetings modifying the special rights
attached to shares of the class in question. The decision of the meeting becomes effective only if the special meeting has given its approval. The rules as to
quorum for special meeting and majority required to pass resolutions are the same as the rules governing extraordinary meeting.
 Cont….
Distinguishing between Various of Resolutions
• Resolution by Ordinary general meeting: - It is held annually, within four months after the end of each financial year (Art 418)
It passes resolution on:
• Financial matters: - In this regard it approves the annual accounts and the management report. At the end of each fiscal year the
board of directors must prepare annual accountant and management report for submission to the general meeting. The annual
accounts which the BODs must prepare are balance sheet, profit and loss statement and notes on the accounts. The management of
the BODs must describe the company's financial condition
• Administration of the company; - The ordinary meeting appoints the directors, determines their remuneration and approves any
transactions entered into by the company in which they are interested and approves the payment of the dividend. It also appoints
auditors and determines their remunerations. A resolution of an ordinary meeting is required to authorize the BODs to issue bonds.
• Resolution by extra ordinary meeting: - An extra ordinary meeting may pass resolution on altering any provision of the company
statutes. Provided it does not increase the financial obligations of the shareholders, take away the basic rights of the shareholder such
as the right to transfer his shares or the right to vote at meetings or the change of the nationality of the company or shareholder to
increase investment in the company needs the present of all holder of shares having voting right and unanimously voted.
• Resolution by special meeting: - Special meeting passes resolution on the approval of decisions of general meetings to modify the
special rights attached to shares of the class in question. The decision of the general meeting becomes effective only if the special
meeting gives its approval. The rules as to the quorum for special meeting and majority required to pass resolutions are the same as
the rules governing extra ordinary meetings.
 Directors /Art 347/
• SC being legal person can not act by itself. It must act through some human agency. The persons by whom the business of the company
is carried on are, termed as directors and group of directors as an institution is termed BODs.
• The BODs is the managerial body. It is established by general assembly from among the shareholders. The number of directors is set in
the statutes, but must be not less than three and not more than twelve; all directors must be shareholders of the company. They must
have the real ownership and deposit of certain number of share as may be fixed in the statutes. Such share should be deposited in the
company until directorship is ceased and liability is discharged, if any /Art 349/. Individuals or legal entities can become directors. If a
legal entity is appointed as a director of SC, it must appoint an individual person /Art 347/4/.
• Appointment /Art 350/
• The first directors may be appointed in the statute. Their appointment shall be submitted to the first meeting of subscribers for
conformation. If the meeting does not conform the appointment, other directors may be appointed.
• Subsequent directors are appointed by ordinary general meeting of shareholders.
• The term of office of the director can not exceed three years provided that he can be eligible for re-election.
• Directors may appoint new directors to replace departing or resignating directors during a financial year /Art 351/. Such replacement of
directors is effective only for the remaining duration of the replaced directors term of office and must be ratified by the next ordinary
meeting of shareholders in order to be valid. If the replacement is not conformed, general meeting may appoint other directors.
However, when a director's appointment is considered void, the decisions and acts carried out by the person are appointed (or replaced)
by the directors remain valid. When there is no surviving director, auditors must call a shareholders meeting in order to appoint
directors. Where the surviving directors are less than half of the number of directors they call shareholders meeting in order to appoint
additional directors.
 Powers, Duties and Liabilities of the Board
of Directors (BOD) (Art 360 - 362)
• The BOD has power given to it by the law of statute and decision of general meeting of the shareholders.
• In general, the BODs posses the power to act in all circumstances on behalf of the company subject to the limit of the company business
purpose and to the powers which are expressly reserved by law to meetings of shareholders (i.e. mainly approval of the annual accounts
amendments of statute) In practice, however, the business of the company is taken care of by the chairman and general manager and the
BODs merely defines the general policies to be followed by the company; takes or approves strategic decisions and controls the chairman
of the BOD.
• A company is bound by all business arrangements entered into by its BODs provided these businesses are within the scope of business
purpose of the company, provisions of the statutes restricting the powers of the BOD may not be invoked against a person who deals with
the company, whether such person knows of them or not.
• Provision in the statute limiting the company's purpose or restricting the powers of the BODs merely enable the company or its
shareholders to claim damage against a director if such provisions are not complied with but does not affect third party with good faith.
The following are some of the duties of the BOD:
a. Organizing management and meeting records
b. Keeping of accounts and books
c. Calling shareholder's meeting each year after closing of the fiscal year in order to approve management report, account and allocation
of profits also meeting should be called where three quarters of the capital are last.
d. Establishing reserve fund required by the law and statutes
e. Applying to the court where the company is unable to pay debt with the view of composition, bankruptcy or winding - up.
 Agreements between company
and directors (Art 355-357)
• This is to regulate company's business transaction in order to take into account
potential conflicts of interest between the company and their directors. There are two
types of agreements:
Prohibited agreements /Art 353 & 357/
• Directors are strictly prohibited to be partners with joint and several liabilities in rival
companies nor do they compete against the company on their own behalf or on behalf
of third party.
• Directors cannot enter any form of loan agreement with the company, be granted an
over draft by the company in current account or have their obligations toward third
parties guaranteed by the company agreements violating this prohibition are void.
• The prohibition of entering into contract of loan or guarantee does not apply when the
director is legal entity or the company operates a banking business.
Regulated agreements /Art 356/
• The basic purpose of regulation provided under Art 356 is to ensure full disclosure of potentially conflicting
relationship between a director and entities with which the company is doing business and to ensure that the
other directors have the power to approve.
• The regulation applies to agreements which are entered into directly or indirectly between the company and its
directors between the company and another entity in which one of the directors is owner, partner, agent, director
or manager of such entity
• Any such agreement must be obtained a prior approval by BODs before being executed notice shall be given to
the auditors
• The auditors must prepare special report on agreement came within this scope to general meeting of the
shareholders, irrespective of their execution date. This report must contain, a listing of all such agreements
describe this content and purpose and mention the names of the directors concerned.
• The meeting must consider the agreements and approve or reject them
• Agreement approved by the meeting is effective unless set aside on ground of fraud.
• Agreements not approved will also be in force but the director concerned will be liable for damage the company
suffered from fraud. In the case the concerned director fails to fulfill his liability, the BODs will be liable.
 Directors Liability/Art 364-367/
• Directors may render themselves liable to the company and to the third party.
Liability towards the company directors are agents and trustees of the company as such they owe certain duties to the company to
exercise the duties imposed on them by law the statues and resolutions of the meetings. Breach; of these duties or failure to carry out these
duties make directors to be liable jointly and severally to the company and its shareholders.
• Directors specifically are jointly and severally responsible when they fail to take appropriate measure within their knowledge to prevent
or mitigate damage that may happen to the company in relation to general management. A director, who is not at fault while decision is
taken by board of director, provided he is dissenting and such has been entered in the book of minute of register of board of directors
may not be liable.
Liability to the creditors:- one of the duties of the directors in to preserve the capital of the company intact. This is to make payment to
the creditor suppose the company is wound up. In such cause directors are liable to pay creditors for any demands.
Proceedings against the directors
• In the case of proceeding by the shareholder against the directors; no proceeding may be taken against directors unless resolution is
passed by general meeting at least voted 1/5 of the capital. In such cases directors may be removed and new directors may be appointed
by the same meeting. Where the resolution to institute is passed the company may bring the case to the court within three months and if
the company fails to bring the case to the court, shareholders who voted for the resolution may jointly bring the case to the court.
• Creditors may bring the case to the court specially where the capital of the company is insufficient to cover the debt of the creditors. If
shareholders meeting passes resolution not to bring the case against directors, it may not affect the right of the creditors. On the other
hand, any shareholder or third party can bring cases against directors is there is damage against them.
 Cont….
Removal /Art 354/
• The law empowers the company to remove a director by general meeting before the expiry of term of office. Even if there is
no agenda regarding removal of directors (Art 397/2/). However, a director so removed shall not be deprived of any
compensation payable to him in respect of the termination of his appointment in the absence of good cause.
General Manager
Appointment
• As a general rule, day to day activities are carried on by general manage, under Com C of Ethiopia.
• The general manager is appointed by the BOD (Art 348/1/).
• It is also general rule that general manager is not member of the BODs (Art 348/4/). This is to avoid potential conflict of
interest and to ensure that the appointment of directors may always be freely revoked by the BODs.
• However, a close examination of art 362/2/ may lead to different result which is exception to the principle stated above. It
states that articles of association of a company may specify that directors or one director may be responsible as a manager.
• This indicates that one director or more directors can be responsible as a manager. The code further states that they are
exercising their power in the name of the company.
• Manager can be appointed from among the BODs provided it is stated in articles of association.
Duties, powers and liabilities
• Powers: - the power of the manager is the power that is delegated by the BODs.
• BODs decides on substantial policy issues. Such is implemented by general manager.
• The general manager carries on day today activities of the company. It represents the company in
relation to third parties. It enters into contract on behalf of the company. Hire and fire of employee
of the company sign on negotiable instruments is day to day activities of general managed.
• Duties: - general manager has to perform all his activities according to the power delegated to
him, and according to the statutes and the law. Furthermore, general manager occupies the
position of a trustee for the company and he has to safeguard the interest of the shareholders and
the company.
• Liabilities: - general manager is liable for damage resulting from infringement of his power or
violation of law, statutes and from deliberate or negligent acts of mismanagement. Such liability
may be incurred to the company or third party as well as individual shareholders. In such case he
is liable to the company and third party.
 Cont….
Removal
• The law empowers the BODs to appoint general manager for such period as stated in the statues or law. The power to
appoint the general manager, conferred on the BOD carries with it by implication the power to terminate the
appointment. The general manager functioning under the law is an employee of the company.
• However, such power must be exercised for good causes after due enquiry held in accordance with the rules of natural
justice. The company will be liable for damages if such removal is breach of contact.
Accounts and audit
out of capital payment
• At the end of each fiscal year the BODs must prepare annual accounts and a management report for submission to the
general meeting (Art 446).
• The annual accounts which the board of directors must prepare are balance sheet, profit and loss statement, and report
on the activities and affairs of the company which should show remuneration of the directors and auditors and proposal
for the distribution of dividend, if any,
• Payment as dividend is only paid where there is profit and such profit is declared to be paid by the general assembly. (Art
458) When there is no profit payment of dividend out of capital is strictly prohibited. If dividend is paid from capital it
shall be deemed as a fictions dividend and the persons making the distribution shall be criminally and civilly liable.
 Cont….
Reserve funds /Art 453/
• The legal reserve which is made from net profit mandatory be allocated on a long-term basis to the company's
operation.
• The first one is legal reserves required by law. It is five percent of any annual profit that must be allocated to the
legal reserve until the amount of legal reserve is equal at least 10 percent. The amount reserved is not less than one
twentieth of the profit. The legal reserve can not be distributed to the shareholders nor be used for the repurchase or
redemption of the company shares.
• The second type of reserve fund is the supplementary reserve which must be allocated to the company's operation
on long-term basis by application of the articles of association. They can not be distributed to the shareholders.
• The third one is optional reserves which correspond to profits allocated to the company's operation by a decision of
the shareholders meeting in accordance with the articles of association.
• The fourth one is free reserve that is created by an ordinary general meeting.
• Some time it is known as “revaluation reserve”, which unlike the other reserves referred to above, is not extracted
from profits realized by the company, corresponds to any difference revealed in the context of an asset revaluation
between the historical book value of certain tangible assets (such as immoveable or trade marks) and their real market
value.
 Profits and dividends
• The profit of the company is the net receipts for the financial year after deduction of general costs and other changes (Art
452/11/). Any profits realized during the fiscal year of which the accounts are submitted to the meeting must be allocated by
the meeting. As stated above, first the company must allocate to legal reserve until it reaches one tenth of the capital of the
company.
• After the legal reserve and if appropriate other reserves have been funded, the annual meeting is free to use any remaining
part of the profit by allocating them to the shareholder as dividends.
• Dividend is the return that a shareholder gets from, the company, out of its profits, on his shareholder.
• It is the portion of the profits of the company which is allocated to the holders of shares in the company or it is as portion of
the distributable profits of the company.
• It may be a fixed annual percentage as in the case of preference shares or it may be variable as in the case of equity shares.
It is only, payable out of distributable profits only distribution of fictitious dividends (it is dividends in excess of available
profits) is a criminal offence as well as civilly makes liable (Art 458/2/).
• The time and manner of payment of dividends is decided on by the annual meeting (Art 458/3/).
• Right to claim dividend arises only after the same is declared by the company in general meeting and unless it is declared,
no shareholder has any claim against the company in respect of it. It is usual practice for the BODs to recommend, and the
annual general meeting to declare the dividend. And once the dividend is lawfully declared, the amount due to each
shareholder on account of dividend become a debt, and shareholder creditors of the company (Art 458/5/)
 Appointment of auditors
• Auditors are appointed by shareholders and are entrusted with the external control of the company.
• Their main functions are to audit the accounts of the company, certify certain information provided to the shareholders, and prepare
reports which must be submitted to the shareholders.
• Company may elect one or more auditors and one more assistant auditor.
• The first auditors of the company shall be appointed by the subscribers of the company and subsequently be appointed by the
general meeting of the company (Art 369/1/).
• The auditors appointed by subscriber shall hold the office until the first annual general meeting. Auditors elected at annual general
meeting may hold office for three years (Art 369/2/).
• The following person are prohibited to be elected as an auditor (Art 370)
• the founders, contributors in kind, beneficiaries enjoying special benefits /preferred rights/ directors of a company or one of its subsidiaries or its
holding company,
• the blood relatives or in-laws of any person mentioned in (a)
• persons who receive from persons mentioned in (a) a salary or periodical remuneration in connection with duties other than those of an auditor,
• The law prohibits auditors not to be appointed as a directors or managers of the company which they audit, nor of one of its
subsidiaries of its holding company with in three years from the date of the termination of their function.
• Art 371 of CC states that “auditors may be removed by general meeting at any time subject to demand compensation, if they are
removed not for good cause. It is to ensure that auditors cannot be removed at will by management or shareholders”.
 Cont…
Dissolution and wind up
• Companies are rarely dissolved. Rather than dissolve a company shareholders usually prefer to sell their shares. In
certain cases however, dissolution cannot be avoided.
• There are many causes of dissolution of a company /or partnership/, Causes common to all kinds of BO /Art 217-218/
• Dissolution may result from the application of rules of law, from provisions in the statutes of the company/
partnership from the common agreement of the members to dissolve/ or from a judicial decision dissolving the
companies for just cause.
Dissolution by a rule of law
• In the case of SC, the minimum number of shareholders is five and if a number is reduced it may not be considered as a
company and members will be liable personally, as though it was not a company and be dissolved by the court upon
application by any interested party (Art 311)
• In the case of reduction in member or where organ of the company failed to function Art 311 and 511 regularize the
situation. The court may make some provisional arrangements, in which if the companies comply with such
arrangement may be survived from dissolution.
• If the companies complied the provision measures, taken by the court they still exist and retain their corporate
personality, but if not complied, the companies may be dissolved by the court.
 Cont….
Dissolution under provisions of the statues
• Causes of dissolution may be laid down in the statues of the company /partnership/ they may relate to its duration or
its objects.
• The members are free to fix the duration of the company or partnership.
• If the statute of a company /partnership provides that it shall endure for a fixed term, it is dissolved automatically at
the end of that term. However, the members may prolong the duration of the company or partnership by modifying its
statues /Art 217/e/
• The dissolution of the company /partnership may be automatic where the company's/ partnership purpose could not
achieve. (Art 217/a/) or where it accomplishes its object for which it was formed.
• The company may not met its purpose where the assets or undertakings of the company totally ceasing to exist either
by being physically destroyed, or by becoming unusable for the purpose originally intended. Generally speaking
dissolution takes place only if the loss of the relevant assets makes it absolutely impossible for the company
/partnership/
• The accomplishment of the objects for which the company/ partnership was formed occurs when it was formed to
carry out one or series of transactions, which have been completed, a company /partnership may be dissolved for
these reasons even if it was formed for a fixed term which has not yet expired.
 Dissolution resulting from the
agreements of the members
• A company or partnership may be dissolved prematurely if all its members agree, or if the appropriate majority resolves to
alter its statutes so as to bring abut its immediate dissolution. In the case of SC, the company may be dissolved by resolution
of an extra -ordinary general meeting without alteration of its statutes (Art 495/d)
Dissolution by the order of the court
• The court may dissolve a partnership or (a company) if there is just cause to do so (Art 218/1/) on application of partner only
for partnership. When a member fails to fulfill his obligation as such (e.g. a member fails to his agreed contribution to
capital, when prolonged infirmity renders a member incapable of attending the affairs of the partnership) only for
partnership (Art 260, 278/1/h/, 295, 303).
• In carrying on business of the partnership will be seriously harmed, because of this, prolonged infirmity is a cause of
dissolution
• The court's jurisdiction was created in consideration of the public interest as well as for the protection of private rights, and
it can not therefore be excluded by the provision in the statutes of the company or partnership.
Dissolution of Share Company
• SC may be dissolved by the court on the application of any member or creditor where member of the company reduced less
than legal minimum and the company does not possess the prescribed organ (Art 495/1/(f)) however, it may remain as a
company for six months in such reduction (Art 311(1)). Further, the court may give provisional order as it deemed necessary.
 Cont….
Liquidation of Share Company
• Liquidation and its procedure is only stated under SC. This procedure can also be applied for all other BO
impliedly,
• The liquidation comprises all the operations required to complete its current transaction, to collect and realize
its assets, to discharge its liabilities and repay its capital and to distribute any surplus of assets among its
members.
• The company continues to exist and has corporate personality for the purpose of the liquidation until
liquidation in completed, this rule has general consequences.
• In the first place, the company continues to be entitled to the exclusive use of its name, although this must be
followed by the words “in liquidation” (Art 497/11/) secondary, the company retains its registered office and
the ownership of its assets.
• The survival of the corporate personality of the company is however limited to the needs of the liquidation is to
those operations which will be necessary or useful for winding up its affairs (Art 497(2)).
• The dissolved company will therefore only be able to complete unfinished current transactions and to enter
into new transactions to the extent they are consistent with the object of winding up its affairs (Art 500)
 Cont….
Appointment of liquidator /Art 496/
• The manner of appointment may be stated in the MOA.
• Where it is not stated in accordingly it may be appointed by the general meeting which decided the
dissolution of the company, if the member do not appoint a liquidator, an appointment is made by the court on
the application of members, directors or auditors.
• A liquidator may be removed by the general meeting or by the court on the application of members or
auditors and be replaced by the same procedure stated for the appointment.
Powers (Art 500)
• The liquidator has wide powers to carry out the liquidation. He may sell the assets of the company by private
agreement or public auction. He may institute, deemed or compromise, recover debts owed to the company
and call for payment of capital unpaid on shares issued for cash.
• He can not enter into new business transactions for carrying on the company's business, unless required for
the performance of the contracts still running or where the interests of the winding-up so require.
• Liquidators are personally, jointly or severally liable if they act outside of their power.
 Private limited company
(PLC)
• PLC is the most popular form of company in Ethiopia. One reason is that it is particularly well adapted to small and medium sized
business and currently, the Ethiopian business is at these stages. The other point is that it is hybrid of SC and partnership.
• On one hand it is limited liability, its members liability is limited to the extend of their contribution, on the other hand shares are
not freely transferred to the outsiders, which is chief chrematistics of partnership. Thus, this company is middle way between SC
and partnership.
• May be formed to pursue any purpose or to carry on any activities, however, it may not take banking, insurance and similar
activities, such business must be carried out by SC (Art 513).
• The form of PLC is always of commercial nature even if it intends to carry on civil activities (Art 10(2) and 510(2))
Formations
• PLC cones into existence when two or more persons but not greater than fifty persons (Art 510/2/) come together with a view to
exploit some business opportunity.
Documents to be filed with the registrar
• Registration of BO is conducted in Ministry of trade and industry and trade and industry Bureau at Federal and regional level
respectively ( Art 4 of pr. 67/97)
• These organs are registrar of BO. The application for Registration of PLC should be accompanied with the following documents.
• The MOA
• document that states the evaluation of in kind contribution, if any
 Cont….
• These documents shall be evaluated by the registrar and be entered, into book of registry. This formality is of capital
important for this company does not acquire legal personality until it has been entered in the registry of book of
registrar. This company acquires legal capacity as provided by after it acquires legal personality. The following are
the out comes of legal personality
• A name as specified in the statutes
• A registered office which is the main address where the main management of the company is located
• Nationality of the company
• The power to do acts with legal effect acquiring of property and becoming subject to rights and obligations
• The power to sue and to defend legal proceedings against it

• The capital of this company must be at least Birr 15,000 (Art 512/1/) the whole capital of PLC must be paid-up when
the company in formed (Art 517/g/)
• The MOA must contain a valuation of asset contributed in kind (art 519/t). The method of evaluation is determined
by the members. Members contributing in kind are liable for the excess of the value evaluated.
• Members are also jointly and severally liable to such over evaluated amount. The face value of share capital may not
be less than Birr 10.00
• PLC issues shares of equal value. It does not issue transferable securities.
 Cont….
Liabilities of members for the company's obligation
• The liability of the members is limited to the amount if any, unpaid on the shares respectively held by them. The liability can be enforced
during the existence of the company as well as during wind-up. Where the shares are fully paid up, no further liability rests on them.
Members’ meetings
• The essential role of the members of PLC is to take the major decisions which the company has to take. For this reason members are
entitled to be kept permanently informed about the affairs of the company. In particular they are entitled to inspect and copy the
principal records and documents inventory, the balance sheet and the auditors’ report (Art 537)
• Shareholders are above all entitled to be consulted on major matters, either by the holding of general meetings or by their wishing being
solicited individually (Art 532 & 533 respectively).
• In company consisting more than twenty members a general meeting of shareholders must be held every year at the date fixed in the
MOA. This date is usually six months after the end of financial year to approve the annual accounts of the company and the managers ’
annual report (Art 532/1/). Other meeting may also be held when called by shareholders numbering more than one half of the capital, or
by the manager or auditor (Art 532/2/)
• Where holding of the meeting is not required by the law or MOA, managers may send the text of the resolution and demand each
shareholder to give vote in written form. However, there appears to be nothing to prevent the statutes providing that certain specified
matters shall be decided by written vote and others by general meetings.
• Decisions of ordinary meetings are taken on the first call by the votes of shareholders more than half of the company capital, and on the
second call decisions are taken by simple majority disregarding the capital represented.
 Cont….
Ordinary resolution and majority
• Ordinary resolutions are used for matters which involve no alteration of the company's statutes. They include, for example, resolutions
authorizing the managers to enter into a transaction which the statues require the prior approval of the members, resolutions appointing
or remaining one or more non-statutory managers and resolutions ratifying contracts entered into between the company and one of its
managers or members.
Extra ordinary resolution
• Resolutions that need to alter the nationality of the company must be decided by unanimous vote.
• Resolutions involving alternation of the company, transfer of share to outsiders (Art 523(2)), change of statutory manager (Art 527(1))
must be passed by the votes of members who together hold at least three quarters of the capital of the company unless a larger majority is
required by MOA. It is also clear that unanimity is required for an increase in the committeemen's of shareholders to subscribe or
increase in his contributions.
Voting (Art 534)
• The member of votes which each shareholder may cast at general meeting is equal to number of shares he holds. It is not possible to
confer multiple voting rights on certain shares, or to deprive other shares of voting rights.
Role of management
• PLC is managed by one or more managers under the direction and control of shareholders (Art 525)
• Manager is a person who by virtue of an agreement with the company or resolution passed by the company in general meeting or by
virtue of its MOA is entrusted with powers of management which would not otherwise be exercised by him (Art 428).
 Appointment and dismissal of
Manager /Art 526 & 527/
• Managers of PLC need not be members of the company. They can be appointed either among the shareholders or outside the shareholders.
• There are two types of managers.
• Managers who are appointed in the statues, which are known as a statutory managers, and
• Those who are not appointed in the statues, known as non-statutory managers.
• Members of PLC may appoint one or more managers. The appointment of the first managers may be made in the statutes of the company, and all
other appointments are made by the resolutions passed by the members in general meeting. The majority required to pass such a resolutions must
comprise the holders of at least half of the capital of the company (Art 535(1)), but if such majority is not obtained a second poll must be called by
registered letter and decision shall be taken by simple majority without regard to the capital represent.
Removal of the managers /Art 527/
• There are two types of removal.
• The removal of statutory manager needs minimum of majority vote of the numbers representing three quarter of the capital unless a larger majority is
provided in the MOA (Art 536(2))
• Dismissal of the statutory manager needs the amendment of the statute, and amendment of the statute required minimum of three quarter's majority.
• In the case of dismissal of non-statutory manager it requires a majority of members representing more than one half of the capital and in the second
call, decision is passed by simple majority without regard to the capital represented (Art 535).
• Members may agree in the MOA that manager may be dismissed at the pleasure of the members irrespective of the types of manager (Art 527(4)). The
removal of the manager is for good cause even though the law is silent as to what constitute good cause. Manager, there fore may be dismissed for
mismanagement, incompetence or physical disability which may be considered as good cause. If removal is not justified, the dismissed manager may
claim compensation.
 Cont….
Powers of managers /Art 538/
• They may act on behalf of the company in all circumstances, provided that they do not infringe the provisions of its statutes
and that they do not act outside the scope of the objects of the company business purpose.
• Such wide scope powers of managers may be limited by the statues of the company. Thus, the statues may limit the powers
of managers by restrictive provision. The statutes may for example prohibit the sale or mortgage of land possessed by the
company; forbid the managers to borrow more than a certain amount of money in the company's name.
Manager liability (Art 530)
• Managers are liable for damage resulting from infringements by them of the law governing PLC, from violation of the
statutes of their company, and from deliberate or negligent acts of mismanagement. Such liability may be incurred to the
company as well as to the third parties
• When several managers are responsible for the act. They shall be liable individually, or jointly and severally, as the case may
be, being participating in the share of damages which each must pay is fixed in proportion to their respective degrees of
responsibility or degree of involvement.
Managers’ remuneration (Art 529)
• The remuneration of the managers shall be fixed by the resolution of the members of the company. It may be in fixed salary
of share in the profit or both fixed salary and share in the profit. In practices managers are usually paid a fixed salary.
 Cont….
Shares and transactions in shares
• The contributions of cash or in kind for shares of the company constitute its capital. The capital is divided into shares with the same nominal
value, which may not be less than birr ten (Art 512(2).
• Unlike the shares of SC, the shares of PLC are not transferable by the normal commercial forms of transfer, and can not be represented by
registered and beaver share certificate transferable in the same way as shares of SC, shares in PLC, must be made in writing (Art 523). Shares
in PLC, are freely transferred among the company members (Art 523(1)). However, free transferability may be restricted by a provision in the
MOA.
• Shares can be transferred to outsiders with the consent of majority of the members representing at least three-quarters of the capital unless a
larger majority or unanimity is required in the MOA.
Transfer inter vivos and mortis cause
• Generally, articles of PLC provide that any member intending to transfer his shares should offer the shares first to members of the company.
Shares can be transferred to nonmembers only if any member is not willing to buy the shares. This is termed as “preemption clause”
• When the shareholder dies his shares transmit to his heir (Art 524). Transmission is done by the operation of law. Since it is by the operation of
law, transfer deed is not essential for transmission. The articles usually contain provisions relating to transmission of shares.
• On the death of a member, the survivor/heirs/ shall be the only persons recognized by the company as having any title to his interest in the
shares.
• Any person becoming entitled to a share on the death, on production of satisfactory proof as to his title may elect either
• To register himself a holder of share or
• To transfer the shares as the original members could have done
 Conversion and amalgamation of business
organization (BO)

Conversions
• Is an operation by which its legal form is changed without being creating new legal personality (Art 544(1). Thus, PLC may be changed into SC and vice versa. Such
conversion does not result in the creation of a new legal person, but is treated for all purpose as a continuation of the original company. Conversion must conform to the
rules contained in the law, the statutes of the BO governing the alternation of the statutes and special rules governing conversions.
Mode procedural rules
• The decision of conversion of one BO into another form may pass by unanimous or majority required by the law or articles of association.
• A resolution or agreement for conversion of one BO into another has to be notified through publication. Conversion neither increases any liabilities upon member nor
deprives the right of members partially or wholly.

Effects
• A conversion takes effect from the date of registration in the commercial registers. It does not affect the continued existence of the original BO, and therefore causes no
interruption of its activities. The assets of the former BO transfers to the new BO from the date of registration.
• A conversion terminates the appointment of management and powers of directors or managers of the original BO. Consequently, fresh appointment must be made.
Nevertheless, the original office holders cannot treat the conversion as amounting to dismissal without just cause and so claim damages from the converted company
unless they can show that the conversion was carried out for the sole purpose of prejudicing their rights.
• In relation to the rights of creditors:- conversion is effective when it has been published in three successive monthly issues of the notice /Art 546/3/.
• The creditors of the former BO retain all their rights, as regards the new BO. They may also object and demand their debt to be paid before conversion takes place. In the
case of objection, creditors may be paid or guaranteed. No shareholders may be paid from the assets of newly established company until all creditors are paid or
guaranteed. It is the duty of managers to implement the provision that protects the rights of creditors.
• In relation to the members, the conversion does not discharge member with unlimited liabilities from their former liabilities of the former BO (Art 548). However, if
creditors have been informed the conversion with registered letter and do not dissent from the conversion within thirty days from the date of such notification and
approves the conversion, members will be relieved from the liabilities.
 Amalgamation

• Is the operation by which two or more, BOs group into only one BO and by which the members of the amalgamated
BO receive shares issued by the BO benefiting from the amalgamation.
• It may either result in the creation of a new BO to which one or more BO contribute their assets and debts or in the
contribution of the assets and debts of one or more BO to another existing BO (Art 549/1/).
• In amalgamation, all property and rights forming the assets of the amalgamated BO are transferred to the
beneficiary BO.
• The beneficiary BO must comply with the undertakings and agreements entered into by the amalgamated BO and all
claims and liabilities of amalgamated BO will be transferred to the beneficiary BO.
Mode/procedure/
• The decision of amalgamation is taken by each BO.
• Such decisions have to be approved by different classes of shareholders and debentures (Art 550). The terms of
amalgamation is drawn up which transfers all assets and liabilities to the amalgamated BO the conditions and
characteristics of such a transfer is often described as similar to those attached to an inheritance.
 Cont…
Effects
• Within three months after completion of amalgamation to the court in order to
protect their rights. When it is presented to the court the court may reject the
application in the following conditions:-Where
• all creditors are agreed to the amalgamation, and
• payment is effected to those who did not consent to the amalgamation or
• such payment has been deposited in the bank for the benefit of those who did not consent
to the amalgamation
• In addition the court may reject such application by giving order that
sufficient guarantee be produced by the beneficiary company to the creditors.
 One person company (OPC)
• OPC is a business structure that combines some features
of a sole proprietorship and a private limited company,
while PLC is a separate legal entity with multiple
shareholders.
• A PLC must have at least two shareholders, while an OPC
is established by one person.
• PLC can receive tax advantages, such as reduced
corporate tax rates, and can split income between the
company and its shareholders.
 Law of General Contracts

• The fundamental source of obligation can be classified into two: a) Contract b)

Beyond the contract: divided into unjust enrichment (quasi-contract), unlawful acts
(delict) & causing physical injure to the person or causing damage to property of
person (quasidelict).(Tort)
• Types of Obligations: Obligations can be classified based on the nature of activities,
and the number of parties legally bound by the obligation.
a. Divisible obligation
b. Indivisible obligations
c. Positive obligation ; person‟s obligation is to do or to give some thing to
another.
d. Negative obligation; obligations not to do
 Cont…..
• Based on the number of parties legally bound, obligations can be classified into;
a. Unilateral obligation; only one of the parties is legally bound by the contract while two
parties are participate in the contract Example, donations
b. Bilateral obligation arises from a contract entered into by two parties in which these
contracting parties are bound legally to each other on equal terms.
c. Multilateral obligation; more than two persons undertake to perform an obligation. Such
obligations can be classified into three:
1. Simple joint obligation; parties who are bound by such obligation are not jointly liable for the total
debts, but each debtor is liable for its own share with the exception of Art.1917 (indivisibility)
2. Joint obligations; debtors are jointly liable
3. Several and joint obligations; the co-debtors shall be jointly and severally liable unlike joint obligation
where the debtors are jointly obliged. In several and joint obligation, the creditor may require all the
debtors or one of them to discharge the obligation in whole or in part.
 Cont…..
• Contract law is the most important which creates smooth functioning of business transaction by creating
certainty, predictability, and enforceability.
• The law, under Art.1677 (1), also stipulate that the relevant provision of the Civ C, Book IV title XII, shall
apply to obligations notwithstanding that they do not arise out of contract. Accordingly, contract law may be
applicable to extra-contractual obligations, unlawful enrichment obligation and so on. However, the scope of
application of this law does not affect the special provisions applicable to certain obligations by reason of their
origin or nature (Art. 1677(2))
• The basic economic function of contract law is to provide sanction for reneging, which, is in the absence of
sanctions, sometimes tempting where the parties‟ performance is not simultaneous. the basic function of
contract law to provide a sanction for breach of promises. Otherwise, people would be reluctant to enter into
contracts and the process of economic exchange would be retarded. An important function of contract law in
is also to enforce the parties‟ agreed upon allocation of risk.
• A related function is to reduce the costs of the exchange process by supplying a standard set of risk allocation
terms for use by contracting parties. If the parties are satisfied with the way in which the rules allocate the
risk of that contingency, they have no need to incur the expense of writing their own risk allocation rule in to
the contract
 CHAPTER TWO FORMATION OF
CONTRACTS
• Consent is a declaration of intention to be bound by an obligation. Consent is a declaration of
intention to be bound by an obligation. Art.1679 the parties have to agree to be bound. Mere domestic
or social agreements are not usually intended to be binding and, therefore, are not contracts.
• A binding contract is usually in the nature of a commercial bargain, involving some exchange of goods
or service for a price. Thus, in commercial agreements, there is a rebuttable presumption that a
contract is intended but in social or domestic or family agreements there is a rebuttable presumption
that no contract is intended.
• Generally, the mere existence of agreement to be bound by defined obligation does not necessary
make Contract. It is necessary to identify whether the parties intended only moral obligation or legal
obligation, if parties agree to be bound morally only, the agreement is not a contract since it cannot be
enforced by state backing. For a contract to exist parties must agree that any violation of the
obligation would be punished by using state machinery. Therefore; the phrase “…agrees to be bound
thereby…” in Art. 1679 implies the parties‟ intention to take any controversies in relation to
obligation to court thereby allowing the court to interfere in their relation.
 Meeting of Mind (Art.1680)
• Contract occurs when the minds of the offeror and offeree meet upon common
object of the contract. This meeting of mind is called consensus ad idem i.e.
consent to the matter.
• The person is bound whatever his real intention may be if a reasonable man
would believe that he was assenting to the terms proposed by other party and
upon such belief he enters into a contract with him.
• Parties are to be judged not by what is in their mind but by what they have
said, written or done. So nobody could be bound by an intention (estate of
mind) which is not included in the offer or acceptance i.e. a person cannot
claim to avoid a contract by citing reservations or restrictions that has not
been made clear to the other party through offer or acceptance (Art 1680(2).
 ELEMENTS OF CONTRACT
• A) Capacity: Minors and judicially interdicted (Insane & infirm) persons cannot enter into a
contract. However; when a legally interdicted person enters into a contract which he was
prohibited from such is not limited to incapacity but also extends to illegality as per Art 1716.
The same holds true for special incapacities indicated under Art. 194.
• B) Consent: (Art.1679-1710) /Remark; it will be discussed below/
• C) Object: Object of a contract is what parties have actually agreed to undertake. It is the
obligation of both parties to the contract. Object of contract differs from subject matter of
contract. For example In contract of sale of house; the obligation of the seller is to transfer
ownership and possession to the buyer and the obligation of the buyer is to pay price. the house
is subject of the contract. Moreover; object of contract differs from penalty clauses of contract
(see Art. 1886-1895).
• D) Form: if any (Art 1719 – 1730): contract may exist either in written form or oral form.
Limitation of freedom of form means denying the parties the option to make their contract orally
 The reasons for such limitation
may be;
• Evidentiary value
• Recalling content of contract
• Indication of intention to create legal relation: If a
contract is made in writing, there remains little doubt that
there was no intention to be bound. If a contract is to be
made in writing, a party thinks twice before he gives his
final consent to be bound. Firstly, the person thinks to give
consent and secondly he thinks when he is required to
sign
 The following contract shall be
made in writing
A/ contracts required by the law to be made in writing:
• Contract relating to immovable: - all contracts that affect a right on an immovable except lease must
be made in writing. In a case Rented Houses Administration Agency vs. Sosina Asfaw in a file No
15992 presented on Hamle 19, 1997 to it the Federal Supreme Court Cassation Division ruled that
renting house need not be made in writing.
• Contract with public administration (Art 1724): Any contract to which a government agency is a
party, including any type of employment contract, should be made in writing.
• Contract of guarantee (Art 1725 (a)
• Contract of insurance (Art 1725 (b)
• Contract of marriage Partnership contract Pledge for a loan exceeding 500 birr (Art 2828 (2) Sale
and mortgage of business (Art 152, 177 (2) comm. code)
• Promise of sale and preemptions (Art 1412)
• Agreement prohibiting assignment or attachment of a certain this (Art 1430)
 The following contract shall be
made in writing
• B/ contracts required to be made in writing by the parties, Art 1726.
• C/ Preliminary contract (Art 1721): a contract that intends to lead to another contract shall be
made in writing if the contract to which it leads is required to be made in writing either by the law
or the parties. The best example is agency contract. If the agent‟s power is to enter into a contract
in writing he should be conferred with such power in writing (Art 2200(1).
• D/ Variation of contract made in writing (Art 1722)
• N.B The law provides form for creation and variation of a contract but it is silent about form for
extinguishing a contract. However, these writers are of the opinion that when parties intend to
extinguish contractual obligation that exists between them, they shall make the extinguishing
contract in special form if the contract to be extinguished was made in special form.
• Effects of form: When the parties or the law requires the contract to be made in writing, failure to
comply with such requirement make the contract a mere draft (Art. 1720). The contract never
exists until the formality requirement is fulfilled. However, failure to pay stamp duty or registration
fee never affects the effect of the contract (Art. 1720(1).
 Cont…..
• Some contracts need to be registered. Such registration is normally intended to make third
parties to be aware of the existence of such contract. Registration may also be intended to
have deposited documents in a relevant place. Therefore, such registration does not have
any relationship with form of the contract. That means even if the legal requirement of
registration has not been fulfilled, the contract can still be enforced between parties.
• Registration can affect the validity of contract only when the law expressly states that
failure to register the contract shall make the contract non-existent (Art.1720 (3). However,
it is expressly provided that mortgage contract and partnership agreement do not produce
any legal effect if they are not registered (Art 3052 and art 177(2), Art 222 Com C).
• The person who arbitrarily abandons his offer or acceptance may be extra contractually
liable (Art. 2055). In short, written form for Ethiopian contract law means any special
document containing content of a contract signed by parties to the contract and at least two
witnesses, Art.1727.
 Consent: (Art.1679-1710)
• Consent is expressed either in the form of offer or acceptance Offer and acceptance are ways of
communicating one‟s own intention to be bound by an obligation. Communication of offer / &
acceptance can be done through z ff means of communications; oral, written, conduct (when the
offeror performs partly or wholly the obligation that he will perform if the contract is entered
into.) & signal (gesture and object placed to give information).
• Offer: In short offer contains three important elements, the content of the contract, the
agreement of an offeror to be bound and request of the offeror to the offeree to be bound by the
offer. The offeror may choose the ways that the offeree shall use to give a response (Art.
16811(2). In principle, an offer is binding on the offeror only if it is addressed to a specified
person (Art 1687- 1688).
• The person may want to advertise his product or service without any intention to be bound by
the content of the advertisement (declaration of intention, but not offer). If a person “does not
make his intention known to the beneficiary of the declaration” such declaration shall not be
taken as an offer (Art 1687(a)).
 The following declarations of intention are not offer but
advertisement:

• Sending price lists or tariffs (Art 1687 (b); the price list or tariff may be sent to specified address or a specified
person but still such act should not be taken as an offer because of the following reasons; it never indicates the
intention to be bound, Price list/ tariff never indicate all terms of the contract, Customarily sending of price list/ tariff
is taken as an advertisement, The price list/tariff might have sent to many creating the problem of multiple
acceptance.
• Posting up price list/tariff and catalogue in a public place: if it is considered as offer there would be multiple
acceptances. Example; Vacancy announcement.
• Display of goods for sale to the public: Almost all sales are sale at open market. Every person passing by can have
a look at the goods and can easily infer that the goods are ready for sale .But there may be multiple acceptance and
the content of the contract is also incomplete such as performance date and place and quantity.
• Sale by Auction (Art.1688): It is inviting possible offeror to come and make an offer. Many may come and make an
offer and the person who invited such offer may freely determine which to accept there by rejecting others.
• Public Promise of Reward (Art 1689): As stated above, a declaration of intention to be bound by specified
obligation becomes an offer only if it is addressed to an identified person. An exception to this principle is public
promise of reward. If a promise of reward is to a specified person or group of persons it becomes an ordinary offer if it
is made to be known to such a specified person or group of persons. In short, a public promise of reward is special
offer.
 Effects of Offer (Art.1690, 1691, 1693(1),
2055)

• An offer cannot be changed by the offeror for unjustified reason. An Offeror who changes
his offer partially or totally is liable for any material damage on the offeree.
• The offeror can freely change the content of his offer or totally withdraw it before it
reaches the offeree (Art 1693(1).
• The offeror can make his offer not to reach the offeree by informing the offeree that
change has been made to the content of the offer or that it has been withdrawn. This has
to reach the offeree before he receives the offer or at latest before the offeree takes
decision that affects his material interest on the assumption of the offer (Art 1693). This
means an offer may be withdrawn or modified as far as the offeree has not incurred
expenses with a view to concluding a contract with the offeror.
• So what is crucial is not the time when the offeree received the offer but the decision he
has taken due to his knowledge of the offer. The offeror can change or withdraw his offer
at any time before the other takes decision that affects his interest.
 Cont…..
• How Long does the Offer Bind? The offeror may himself determine how long the offer
remains binding. In case the offeror fails to fix time limit for acceptance, the offer remains
binding for reasonable period only (Art 1691).
• Reasonable period indicates the time that the offeree needs to understand the offer and
decide to accept or reject it. if the acceptance reaches the offeror after expiry of
reasonable period the offeror has a duty to inform the offeree the lateness of the
acceptance by using the speediest medium of communication available.
• If the offeror fails to reject the acceptance immediately the offeree has the right to claim
that the acceptance was given within reasonable period and hence contract was concluded
(Art 1691(2).
• The third ground that terminates the effect of an offer is the offeree‟s rejection of the offer
(Art 1690(2). Offer is deemed to be rejected “where acceptance is made with reservation or
does not exactly conform to the term of acceptance”
 Acceptance (Art 1681-1685, 1689(1), 1694)
(1893(3)

• It is a declaration of intention to be bound by each and every contents of an offer.

• Duty to Respond (Art. 1682 -1685): The offeree does not have a duty to give response to the proposal of the
offeror.
• However, in the following cases the offeree has a duty to respond a “no” answer if he does not want to be bound
by an offer, otherwise his silence may be taken as a sign of acceptance by the offeror.
• Duty to accept: The literal meaning of Art.1683 is that once offer is made, acceptance is automatic. Sub Article 1
declares that when a party is bound by law or concession to accept “no acceptance shall be required”. This is
further strengthened by sub – art 2 which states that “the contracts shall be complete upon the receipt the offer”
thereby implying that the offeror can claim performance of the contract once the offer is delivered to the offeree.
• However; such interpretation seems to be illogical for the following reasons:
• Contract depends on agreement of contracting parties,
• The offeree may lack resource to accept the contract,
• The offeree may have legal or contractual or legal authority to stream line offerors (when offerors are many,
• Ethiopian Electric Power Corporation give priority to investors), The offeree can refuse to perform his contractual
or legal obligation
 Cont…..
• Therefore Article 1683 should be understood as imposing an obligation to
respond to an offer. Such conclusion is in line with Art. 1682 and 1684 i.e.
Art 1683 is an exception to the right to remain silent. So Art.1683 should
be amended as follows.
• Art. 1683-2 Duty to Accept
“Where an offeree has legal or contractual duty to accept an offer the offer
shall be deemed to have been accepted unless the offeree rejects the offer
with in time specified in the offer or where no time is specified within
reasonable period.”
• Preexisting Contractual Relation Silence may also amount to acceptance
 Effect of Acceptance
• In general, it can be inferred from Art 1679 and 1693(2) that once an offer is accepted the offeree is bound by his word. What is “the
moment at which acceptance begins to be binding.” Art 1692(1) of the code has answer for this. It provides that acceptance becomes
effective from the moment the offeree sends it to the offeror.
• However; the acceptance must reach the offeror or his heirs before expiry of time limit specified in the offer (Art. 1690) or reasonable
per (Art.1691 (1).
• In short acceptance begins to produce effect from the moment the offeree sends it to the offeror provided it reaches the offeror within
time specified under Art. 1690(1) or 1691(2).
• The offeree may abort the contract by withdrawing his acceptance (Art.1693 (2). He can freely withdraw his acceptance before the
offeror knows such acceptance through the medium the offeree uses to communicate the acceptance to him i.e. if the offeror knows the
acceptance earlier than the offeree expects from a friend or other sources; the offeree can still withdraw his acceptance regardless of
the knowledge of the offeror.
• General Terms of Business No party can be assumed to be bound by general terms of business which he did not agree to be bound with
(Art 1685). To be bound by an obligation one has to know it and agree to be bound (Art 1679). So any annexes to main contract never
bind a party who has not known its content and not agreed to be bound. Knowledge about the existence of the annex is not enough.
 Defect in Consent (Art 1696 –
1710)
• If the consent expressed in the form of offer and acceptance does not indicate what the offeree or
the offeror really intended then there exists defect in consent.
• The cause of defect in consent is either wrong information (mistake, false statement, fraud) or
threat (duress, reverential fear, threat to exercise rights) or lesion.
• Defect in consent may be a cause for invalidation of contract (Art 1696). However, the existence
of defect in consent does not necessarily lead to the invalidation of contract.
• Firstly defect in consent can invalidate a contract only if a party who agreed to be bound because
of information or threat demands invalidation (Art 1808).
• Secondly in some cases the party whose consent was defective may not be entitled to claim
invalidation (1708, 1709, and 1710).
 Defect of Consent due to Wrong
Information
• Mistake, fraud, and false statements may lead an offeror or offeree to have wrong knowledge about the
content of the contract. Mistake (Art 1996- 1703) is when a party makes misunderstanding on the content
of the contract or on the identity of the other contracting party.
• One can invalidate or avoid his obligation on the basis of mistake if the following two conditions are
cumulatively fulfilled (Art 1997, 1998).
• A/ mistake must be fundamental (Art 1998) – A mistake is fundamental when a person misunderstands
the object of the contract or the person with whom he has entered into the contract. the element of the
contract which the parties deem to be fundamental is the object (rights & duties of parties to the contract)
of the contract.
• In short a mistake is fundamental when it related to the object or nature of a contract or identity of the
contracting parties. Nature of contract refers to types of contract.
• For example, a person intended sale contract but in fact entered into service contract, The law also
attempts to indicate what “fundamental mistake” means by telling us non fundamental mistake (Art. 1701).
• Mistake of the motive of a party or arithmetic mistake are non-fundamental.
 Cont…..
• B/ the mistake must be decisive: the mistake is decisive when the mistaken party proves
that a rational person in his position would not have entered into such contract had it not
been for the mistake (Art 1697). Art. 1697 also provides subjective criteria requiring him to
establish that he would not have entered into the contract had he known the truth.
• Good Faith of Mistaken Party (Art.1702) The party mistaken must be ready to be bound
by the contract if the other party agrees to be bound as per the intention of the mistaken
party.
• Reparation (Art.1703) a mistaken party is not without liability. He is accountable for any
damage that may be caused to the other party (Art 1703). So invalidation of contract on
ground of mistake entails payment of damages.
• A mistaken party can escape such liability only if he proves that the others party knew or
should have known such mistake (Art. 1703)
 Cont…..
• Fraud (Art 1704) Fraud is an intentional act of preparing false information or changing or modifying
the content of the subject matter of the contract in a manner that cannot be noticeable by ordinary
observation.
• Fraud does not mean telling untruth or for bearing from telling the truth it rather mean making things
or document to give wrong information.
• Fraudulent act may be accompanied by false statement. Such act is done in order to obtain consent of a
person to a contract.
A defrauded party can demand invalidation of contract where:
• A/ the fraud led him to commit decisive error (Art 1704(1). Fraud is a way of making a person to have
misunderstanding either about the content of the contract or identity of the other contracting or motive
of entering into the contract. Here the error or mistake need not be fundamental. It is enough if it is
decisive.
• B/ the fraud was committed by the party to the contract or he knew or should have known the fraud or
derived undue benefit.
 Cont…..
• False statement (Art 1705) false statements is untrue statement made:
• A/ knowingly (intentionally) or
• B/ without give being indifferent whether it be true or false (reckless) or
• C/ negligently (Art 1705)
• Misleading conducts or silence may also amount to false statement (Art 1705(2). In
principle telling a false statement cannot lead to invalidation of contract.
• However: false statement can be a ground for invalidation of contract where:
• A) there is a special relationship between the liar contracting party and the mistaken party. Here
the special relation should be a legally recognized relation which creates duty to trust one another.
But the duty to trust may be either legal or moral.
• B) Such special relationship led the mistaken party to believe the statements of the other party.
False statement made by third party to the contract cannot be the cause of invalidation of contract.
 Cont…..
Defect in Consent due to Threat (Art.1706-1709)
• A person may be threatened physically or psychologically to make an offer or
to accept an offer made to him. In such case the person is declaring his
intention to be bound as an alternative means of avoiding the effect of the
threat.
• In principle parties enter into a contract for purpose of deriving economic
benefit but in case of threat, both or at least one of the party is entering into a
contract to avoid a possible risk that has been directed against him, his
relative, his property interest.
• So had it not been for the threat, the person would not have declared to be
bound i.e. intention to be bound is lacking.
 Duress (Art.1706 1707)
• Duress is warning the party that unless he enters into a certain contract certain harm will be done to him. One can raise duress as a cause
of invalidation of contract if the following conditions are cumulatively fulfilled:
• There is a threat or warning to cause harm.
• The harm is on the person himself, spouses or his ascendant or descendants
• The harm is on person, life, property, and honor
• The party believes that the harm will happen if he does not consent to the contract: For example the fact that the pistol used to
threaten a party was artificial does not matter; it is enough if he believed that the pistol was the true one.
• The threat should be serious: - the threat is said to be serious when the harm to be caused is greater than the obligation that a party
enters into
• The harm is imminent that is the harm is going to happen soon and a party does not have time to think of another option to avoid the
happening of the harm except by consenting to the contract.
• The threat must impress a reasonable person
• Duress by third Party (Art.1707): Duress may be committed by contracting party or third party to the contract. The right of a party to claim
invalidation is absolute i.e. he can claim invalidation no matter who threatened him to enter into a contract (Art 1707 (1). Moreover; the
other party cannot raise his unawareness of the duress as a justification to avoid invalidation. Such justification may, however; be a ground
to claim damage from a party who got the contract invalidated (Art 1707 (2).
• A Threat to Exercise a Right (Art 1708) Under Art 1706 physical violence is used as a means to compel a person to enter into contract. But
under 1708, right is used as a means to compel a person to enter into a contract i.e. a person is made to choose either to perform/undergo
certain legal obligation or to enter into a contract.
 Cont…..
• Notice: Art. 1708 applies when someone has a right and uses it to obtain a proprietary interest in
excess of what he deserves. However; the threat may be directed against the person from whom the
threatening person does not have any right.
• For example, B. borrowed birr 10,000 from Dashen Bank but failed to pay on time. The manager of the
bank wrote a letter to B‟s brother, L that court action is to be taken against B unless L guarantees the
debt. For fear of the court action against his sister, L entered into contract of guarantee with the Bank.
• Where a person threatens to violate a law or his obligation Art.1708 does not apply. For example, an
employer threatens his employee to terminate the employment contract unlawfully unless the employee
agrees to work in another locality than the place his contract provides.
• However, one may argue that if law invalidates a contract for abusive use of right for a stronger reason
it would invalidate the contract entered into to avoid violation of one‟s own right. So Art.1708 may also
apply in case of threat to violate another person‟s right. However such interpretation goes against the
meaning of Art 1706. So the best thing to do is to repeal Art. 1708 so that matters not governed by Art
1706 be governed by Art 1710.
 Cont…..
• Reverential fear (Art 1709):- this is a psychological threat Reverential fear is also
called undue influence (see Art. 868 civil code). Under common law, undue influence
includes playing on victim‟s superstitions. However; Ethiopian law does not accept
superstitious threat as a reverential fear.
• Under Ethiopian law the fear is limited to the opinion of ascendants or superior whose
opinion can have observable and direct consequence on the future interest of the
threatened person (Art 1709).
• However; the mere existence of reverential fear of ascendant or superior is not
enough to invalidate the contract.
• The reverential fear must make the person to lose certain advantages i.e. his
bargaining power was reduced; he was not free to bargain properly so that the other
contracting party get excessive advantage from the contract.
 Cont….
• Reverential fear is presumed. The fact that superior/ascendant made an offer is
enough to prove the existence of undue influence. The offeree should be
presumed that he entered into such substantially disadvantageous contract
because of reverential fear.
• However; the superior/ascendant can disprove such presumption by any means.
• Defect in Consent Due to Lesion (Art 1710): Contract depends on the concept
of free market economy where the parties can freely determine their obligation.
This presupposes that both parties to a contract are equal.
• However, such equality may be affected by individual want, simplicity and
business inexperience thereby giving the other party the opportunity to exploit
such weakness.
 Effects of Elements of Contract (Art 1808-
1818)
• Generally a contract that misses any of the four elements is either void or voidable. Void contract is a contract which parties intend to produce
binding effect but does not actually have any legal effect. The obligation intended by the parties does not exist from the beginning.
• So, it is called void abinitio. But voidable contract is a contract that has begun to produce effect intended by the parties carrying with itself certain
birth defects that may destroy the effect it has produced. void contract cannot be cured but voidable contract may be cured by agreement of both
parties to the contract (Art.1811).
• A contract is said to be void when the object or form element are missed. The object is either immoral or unlawful/impossible or unclear. Or the
special form required by the law or the parties has not been complied with. In short a contract is void if any of the Art 1711-1729 are violated (Art
1808 (2). But voidable contract is due to defect in consent or lack of capacity (Art.1808 (1).
• Anybody, including public prosecutor, can bring void contract to the attention of court (1808(2). But in case of void able contract only a person
whose consent was defective or the person who was lacking capacity at the time of conclusion of the contract can bring the case to the attention of the
court (see Art.33 Civ Pro. C).
• Since, there is nothing to be invalidated. Art 1810 which provides about action for invalidation cannot apply to void contract. Incidentally, although
invalidation does not exist, a person must claim reinstatement within ten year from the time date of conclusion of void contract .
 Invalidation is not claimed within
two years.
• A party whose consent was vitiated loses his right to invalidate the contract
unless he brings court action within two years from the moment he knew
the fraud or mistake or from the moment the duress disappears (1810(1).
• The right will be absolutely barred if he has been unable to know the
existence of defect in consent or the duress has not disappear within ten
years from date of conclusion of the contract, Art 1845.
• A contract affected by incapacity need to be invalidated within two year
from the date the person became capable (Art 1810 (1). a person whose
consent is vitiated may waive his right to demand invalidation. Such waiver
is a contract and has to be made in same form as the main contract (Art
1811(2).
 Cont….
• The injury is made good. A contract vitiated by lesion remains valid if the party taking undue benefit
agrees to return such benefit (Art. 1812).
• The vitiated provisions of the contract are avoided. Contract may be invalidated partially provided
the valid one is independent of the invalid one (Art 1813).
• Void contract is devoid of any legal effect by its very nature and violable contract is devoid of legal
effect by court decision only.
• Similarities of void and voidable contract:
• Unable to Produce Legal Effect on the Parties like void contract voidable contract is also considered as
void abolition once it is invalidated. Invalidation of voidable contract has a retroactive effect thereby
denying the contract to produce any obligation from the moment of its inception
• Reinstatement (Art 1815-1818): In short, reinstatement is returning the thing or pays back the money
that one has improperly received. Reinstatement is made either by returning back the payment (thing)
received or by paying appropriate compensation for the thing that cannot be returned.
 Cont…
• However returning the thing (payment) may be difficult. Therefore, in the following cases,
reinstatement may be made by paying compensation.
• When Ownership of the Thing is transferred to Possessor in Good faith
• Loss or damage of the thing by fault of receiver
• Obligation “to do” or “not to do”: acts done in performance of contract shall not be invalidated where
such invalidation is not possible (Art 1817)
• Transformation of the thing: - The receiver may substantially change or alter the thing he has received. In
such case, returning the thing would involve serious disadvantage or inconvenience (Art. 1817(2).
• Returning the thing is uneconomical
• In short, if the contract is invalid, any performance made on the basis of such contract
becomes invalid. This means the receiver shall return the thing he received (Art 1815).
However, if returning is not possible for whatsoever reason, an appropriate compensation
shall be paid (Art 1817).
 Chapter Three Effect of Contract (Art.
1731 -1805)
• The two major principles of contract are freedom of contract and
sanctity of contract. effects of contract are interpretation, performance,
court's inability to vary contract and effects of nonperformance.
• If the provision of the contract is clear, there is no need to interpret
(Art 1733). Law is an express intention of the legislators. Interpretation
is, therefore, searching the intention of the parties (Art. 1734(1).
• In a case Ethiopian Development Bank vs. Abdurahman Telisa, file No.
15662 presented to it on Megabit 13, 1999 FSCCD properly ruled that
whenever the provision of the contract is clear court should not depart
from clear meaning even if such clear meaning is unfair.
 Searching Intention of Parties
• Presumption of Good Faith: While searching the intention
of the parties we have to presume that parties entered
into a contract in good faith (Art. 1732).
• Good faith should mean that no party to the contract
intends to deceive the other party by intentionally making
the provision of the contract vague, ambiguous, silent or
contradictory. In short, interpretation is necessitated
without need and expectation of all parties to the contract.
 How to Search Intention of Parties (Art.
1734-1738)
• Having the presumption of good faith in mind, the court uses the following
techniques to arrive at the probable common intention of parties at the time of
conclusion of the contract:
• Conduct of the parties; The conduct may be shown before, during or after the conclusion of
the contract (Art 1734(2).
• Context of the contract
• Business practice
• Good faith; Here good faith indicates the innocent expectation of a party from a contract (Art.
1735).
• Equity
• Positive interpretation; Parties are presumed to have entered into a contract expecting
certain result. So every provisions of a contract should also be given effect.
 Interpretation in Favor of
Debtor:
• The main objective of interpretation is searching for the intention of the parties.
• If the court is unable to know the intention, the law guides the court to interpret the
controversial provision or word in favor of the debtor (Art 1738(1)). However, an
exception to the principle of interpreting in favor of the debtor is contract of
adhesion (Art. 1738(2)).
• If a contract is a contract of adhesion, the court shall interpret the provisions or
words in the adhesive contract against the party who prepared such contract (Art.
1738(2).
• In this case, the stipulator of the adhesive contract may be debtor but he cannot
benefit from the dispute on the meaning of provisions or words in a contract since
he should have prepared the contract free of any defect. He cannot benefit from his
own fault.
 Performances of Contracts (Art.
1740-1762)
• Who Performs Contract (Art. 1740): z contract can be performed by z debtor, his agent or by
person authorized by court or law (Art. 1740(2).
• Z law never mention about performance of a contract by a third party not authorized by debtor,
court or law. However; we can easily argue that if z creditor accepts z payment, z debtor has no
right to stop third party from performing the obligation since the creditor has a right to assign his
right to a third party without z consent of a debtor (Art. 1962). In such case, if the debtor insists on
paying the debt, he can pay it to the person who paid the creditor (Art. 1824).
• Z law refrains from including unauthorized third party in the list of Art 1740(2) since assignment of
a right is a contract.
• A creditor is not duty bound to receive payment from a person not authorized by debtor or court or
law, he is free to accept or reject such payment without any effect on his right against z debtor.
• Generally, creditor should accept performance either from z debtor, his agent or person authorized
by z court of law unless he proves that personal performance of z contract is essential to him or the
contract or law expressly provides personal performance.
 Who May Receive Payment (Art. 1741-1744):

• Payment should normally be made to the creditor or his agent (Art. 1741).
• Payment to Incapables (Art.1742);not valid unless z debtor shows it benefited z
creditor.
• Payment to Unqualified Creditor (Art.1743): not valid unless z creditor confirms it or z
payment benefited z creditor. But, valid when it is made in good faith to a person who
appears without doubt to be z creditor.
• Doubt as to the Creditor (Art.1744): Sometimes two or more persons may
independently claim the payment of a debt. Hence, z debtor shall refuse to pay to any
of them. If he wants to release himself from obligation, he can deposit the debt in court
of law as per Art. 290 – 293 of the civil procedure code (Art. 1744 (1).
• If he is not willing to deposit his debt, any claimant may require him to deposit in court
(Art.1744 (3).
 What to Perform (Art. 1745 –
1751)
• What to pay (perform) answers the question relating to identify, quantity or quality of the thing to be
delivered. To properly answer such question we will classify things into definite thing, fungible things
and money debts.
• Definite Thing (Art. 1745 – 1746): Definite thing is a thing that can easily be identified from similar
things of the same species.
• In short definite thing has its own peculiar identity. Animals and immovable are most prominent
examples of definite things. If a thing is definite thing, we can not find its replicate in the world.
However, for contract law definiteness of a thing simply indicates that a thing which is a subject of
sale is indicated in the contract in its own specific name.
• For example if the sale is white teff the thing is definite in relative to the generic term teff. However;
when we come to groups white teff itself is indefinite (fungible) thing since white teff is of different
variety.
• In case of definite thing, the debtor shall deliver the thing agreed, (Art. 1745). Nobody is bound by
what he did not consent to be bound. The creditor has also a right to refuse part payment,Art.1746.
 Cont….
• Fungible Goods (Art. 1747–1748):
• Fungible goods are goods that are indicated in the contract by using generic terms
such as pasta, teff, wheat, barely. In such case since the thing is not expressly
indicated in the contract, the contract is interpreted in favorer of the debtor (Art.
1738 (1) and the debtor can freely determine its quality (Art. 1747). However, the
quality should not be less than the average (Art.1747 (2).
• Delivery of insufficient quantity or quality does not necessarily lead to the
cancellation of the contract unless it is declared to be fundamental breach of
contract or essential to the creditor (Art. 1748 (1) cum. 1785 (2).
• Moreover; even if the quantity /quality is not essential or fundamental to the
creditor, the contract may provide unilateral cancellation if such quality or quantity
is violated (Art. 1786 cum. 1748 (1).
 Cont…
• Money Debts (Art. 1749–1751):If the debt is money debt, payment should be made in
local currency of place of payment (Art. 1749 (1). If payment is in a local currency,
the issue that comes to our mind is the exchange rate. This is determined on the
basis of exchange rate on the day of payment (Art 1750).
• Incidental to money debt are inflation of currency and interest rate. Parties may
avoid inflation by determining the amount of money debt in reference to the price of
a specified good.
• For example, a person who lends birr 200,000 to be repaid after ten years may say
that the amount to be repaid shall be able to buy 50 tons of first quality Addaa teff.
• Art 1749 (2) is not a law since it imposes obligation on no party; it is simply
reminding the parties the possible option of avoiding or reducing the consequence of
inflation.
 Place of Performance:
• Place of performance has an implication on cost of payment, currency for money debts and territorial
jurisdiction of court. The civil code provides three alternatives; agreed place, residence of the debtor
(delivery of fungible things should be made at the residence of the debtor at the time of conclusion of z
contract Art.1755(2)) and place where the thing situates (it is in case of definite thing at the place where
such definite thing situate at the time of conclusion of contract).
• Generally, Ethiopian civil code advises the parties to exercise their freedom of contract and determine
place of performance. But if they fail to do so the law imports the old maxim, debt is not portable but
fetchable i.e. the creditor has to go to either to the place where the definite thing situate or to the
residence of the debtor. The claimant has to his claim and his claim never come to him.
Time of Performance
• Time of performance is very important to determine transfer of risk, cost of maintenance and preservation
(see Art.1779-1783) and most importantly to claim damage for non-performance. where there is no
contractually agreed time, contract should be performed when either the debtor Art.1756 (2) or the
creditor demand performance (Art.1756 (3). This means, once the contract is concluded, time of
performance can be determined either by the debtor or creditor.
 Cont….
• In the following four cases the debtor may unilaterally postpone time of performance indefinitely
(Art.1757 cum.1759). This is to reduce the risk of non-performance by the opposite party. As a result
Art. 1757 and 1759 exclusively relate to bilateral contracts.
• Simultaneous Performance
• Anticipatory Breach of Contract:
• It is when the debtor informs the creditor before the debt is due that he (debtor) will not perform his obligation
(Art.1757 (2). Such information may be implied from conduct of the debtor or from express statements addressed
to the creditor. However, the party has an option to claim performance by providing sufficient security that he will
perform his obligation (Art.1759).
• Insolvency: When a person is declared bankrupt, all his future debts mature on the day he is declared bankrupt
(Art.1868). So, he has to pay all his future debts on the date he is declared bankrupt. Any payment after that day
may be equivalent to non performance or breach of contract. So a person declared bankrupt loses benefit of time
that he obtained by contract and cannot claim performance unless he himself is ready to perform his obligation
(Art. 1757(2).
• Breach: a party who violated his own contractual obligation does not have moral and legal basis to complain for
breach of contract since the other party can have a counter claim or set-off(Art.1757(1).
 Cont….
• Transfer of Risk :Transfer of risk is dependent on time of performance. however transfer of risk is an issue
only in contracts that involve transfer of ownership. It is not a common characteristic of all contracts. The
relevant law to discuss transfer of risk is law of sales.
• Cost of Payment (Art.1760):Art.1760 applies when the court is unable to ascertain a party that should bear
the cost of payment by reference to their contract or custom, equity and good faith as indicated under Art
1713. Costs of payment are e.g. those of counting, measuring, weighing, packing etc. and not those of
forwarding, unless a payment place other than that of Art.1755 (2- 3) is agreed.
• Debtor’ Right to Receipt (Art.1761-1762) :Receipt is, therefore; such written evidence given by the
creditor to the debtor. The debtor has a right to claim receipt and a creditor has an obligation to give receipt.
• In addition to claim receipt, the debtor has also the right to claim the cancellation or return of documents
evidencing the obligation, provided he has fully discharged his obligation (Art. 1762).
If the debt is partly performed such part performance has to be indicated on the document evidencing the
obligation. If the creditor alleges that the document is lost he has to give to the debtor another written document
that contains his allegation. Returning document evidencing obligation to the debtor raises the presumption that
the debt has been paid (Art.2020).
 Variations of Contracts
• Variation is making amendments to the provisions of a contract. Variation of a contract by
parties is a contract itself (Art.1675). So, as far as the requirements of Art 1678 are fulfilled
parties can modify their contract at any time for any reason.
• Judicial Variation of Contract: The court is normally vary a contract when fundamental
change in circumstance affects the object of the contract (Art.1766-1770). However; court
may also vary a contract where there is undue influence or lesion that never leads to
invalidation of the contract. Accordingly; in the following court may modify.
• Contract between persons having Special Relation: Art. 1766 applies when one side of the
obligation become onerous than he foresaw due to change in circumstances. There is a
Cassation decision that modified lawyer‟s service fee. In Aster Araya vs. Girma Wodajo case
presented to Federal Supreme Court Cassation Division on Hamle 29, 1997, File No. 17191
the court ruled that although courts do not have the power to declare that a contract is non-
binding it can reduce amount of fees to be paid.
 Cont…
Contract with public administration :A government has legislative and policy making power that may enable it to change the
balance of contract in its own favor.
• So now, because of Art.1767, the government has to either refrain from taking measure that make the obligation of debtor more
onerous or must cover the costs of its measure on the debtor.
• Notice that government includes any state agency both in the federal and state level having the authority to make policy or law.
Such new policy or new law should not have been foreseen at the time of conclusion of contract. Fuel price revision in Ethiopia,
for example, is something expected after every three months.
Partial Impossibly of Performance: If obligation was partially impossible at the time of conclusion of a contract, the appropriate
governing provision is Art.1813. Thus Art.1768 applies if impossibility occurs after the conclusion of contract and if such
impossibility never leads to breach of fundamental provisions of the contract as indicated under Art.1785.
• For example in a contract of sale of 200 quintals of coffee if hundred of them are damaged the court may require the
buyer to receive the remaining hundred and make proportionate payment.
• Notice that Art. 1748 is conformity with Art. 1768. Likewise the application of Art.1768 should be limited to fungible
things so that it should not contradict with Art.1746.
• Time of Performance: Court may also extend time of performance for a maximum period of six month (Art.1770)-period of
grace. This extension can be given when z contract does not exclude the court from giving grace period.
• Notice that the creditor may deny the debtor to benefit from grace period by unilaterally canceling the contract. (See Art 1774,
1786, 1787)
 CHAPTER FOUR
Non-Performance of Contract & Its Remedies

• Non-performance refers to parties failure to perform contractual obligations in

conformity with the terms of the contract and the law. It is also called breach of
contract. This failure/breach may be total or partial. It may also relate to delay in
performance.
• Offering performance at a place other than the place agreed up on (place fixed by
law) also constitute non-performance. Delivering a thing that does not conform to
the contract or delivering a defective thing also amount to breach of contract.
• Generally any deviation by a party from the terms of the contract amounts to non-
performance.
• The rules on non-performance are intended to avoid the deterrence effect of non-
performance on contractants for fear that their contract may not be performed; or in
other words it is intended to secure contractual transactions.
 Cont…..
• The parties may stipulate contractual remedies for breach, for example by incorporating penalty clauses. However, the
law of contract provides remedies even if there is no contractual provision to that effect. These are called legal remedies.
• The legal remedies for non-performance protect the interest of the party that is affected by nonperformance.
• The interest that is affected by non-performance of the contract is the benefit, which could have been gained, had the
contract been performed.
• Accordingly, the remedies are supposed to put the victim party in the position he would have been had the contract been
performed. As such, in most legal systems, the law of contract generally recognizes three remedies:
A. Enforcement of the contract. It may be done either by compelling the debtor(forced performance) or by authorizing the
creditor (substituted performance) to perform the debtor's obligation at the cost and expense of the debtor.
B. Cancellation of the contract: judicial or unilateral cancellation. Unilateral cancellation applies in exceptional
circumstances. In all other cases, the victim party may apply to court for declaration of cancellation and it is the court
that has the ultimate power to declare cancellation or not. The effect of cancellation is to put the parties the position
which would have existed, had the contract not been made. In addition to this, he may claim compensation.
C. The third remedy is damages (compensation). The victim party can claim compensation for the damage or loss he has
incurred as a result of non-performance. This remedy may be claimed in addition to either of the above remedies or
independently.
 General remedies of non-
performance under Ethiopian law:
• The general provisions of Ethiopian law contract recognize three types of
remedies of non-performance Art.1771.
• Accordingly, the remedies of non-performance are (1) the enforcement of
the contract, (2) Cancellation, and (3) Compensation /damages.
• As provided under the above provision, they are alternative remedies. So, the
victim party may choose any of the remedies based on the circumstances.
• However, compensation, can be claimed as independent remedy or additional
remedy A party may only invoke non-performance of the contract by the other
party after having placed the other party in default by requiring him by notice
to carry out obligations under the contract (Art.1772).
 Cont….
• There is no formal requirement for default notice & it may be given in any
form: in writing, orally or clear conduct. What is crucial is an unambiguous,
clear communication/expression of the creditor's intention to obtain
performance of contract.
• Default notice cannot be given before the due date of the obligation. the
creditor may fix a period of time with in which he accepts performance, or
after the expiry of which he will not accept performance.
• This period of time must be reasonable to allow the debtor to discharge his
obligations.
• There are exceptional circumstances where the creditor can resort to the
remedies of nonperformance with out giving default notice to his debtor
 Let’s see z remedies & z different circumstances to be considered for
their application

Enforcement of Contract
• Enforcement takes place through court order. It may take place either through Forced performance or substituted
performance.
• Forced performance: Pursuant to Art.1776 the requirements for the application of forced performance are (1) the creditor's
special interest, and (2) the preservation of the debtor's personal liberty. These requirements are cumulative not alternative.
• Substituted Performance: In addition to forced performance, the law provides substituted performance as a remedy for non-
performance under Arts 1777 and 1778. Substituted performance is made at the expense and cost of the debtor.
• Court authorization is, however, indispensable for substituted performance. Without such authorization, the creditor cannot
recover the costs and expenses from the debtor. Where the fungible things are due the creditor may have substituted
performance be made up on court authorization to buy the thing at the debtors expense, Art.1778.
• The provisions of Arts 1779-83 also are aspects of substituted performance but they apply in different circumstances; when
the debtor is ready to perform but unable to discharge his obligation either because the creditor refuse to accept
performance or the creditor is unknown or uncertain or where delivery cannot be made for any reason personal to the
creditor. In all these situations, the debtor has no fault; ready to perform but prevented from performing.
• Thus, the law allows him to discharge his obligations by depositing the thing or money at such place as instructed by the
court. This will relieve the debtor from his obligations. However, the deposit shall be made upon court order and the debtor
shall obtain a court confirmation as to the validity of the deposit.
 Cancellation
• Cancellation is another remedy for non-performance. Cancellation brings an already existing contract to an
end. What is the difference between invalidation and cancellation?
• Cancellation may take two forms-judicial or unilateral (without the need to go to court, But it is allowed for
exceptional circumstances)
• Judicial Cancellation: As a rule, cancellation of a contract can take place through court action. The party
who claims cancellation as a remedy of non-performance shall bring an action to that effect. Arts 1784 and
1785 deal with the conditions under which a court may order the cancellation of the contract.
• A party affected by non-performance may apply to a court requesting it to order the cancellation of the
contract. However, it does not necessarily mean that the court will order cancellation. not all non-
performances will lead to cancellation.
• The court does not cancel a contract when an action is brought to this effect for simply there is non-
performance of a contract. The court has mandatory obligation to consider the good faith of the parties & z
interest of z parties.
• A contract shall not be cancelled except in cases of breach of a fundamental provision of the contract
Art.1785. Minor deviations from the terms of the contract may not be sufficient to cancel the contract.
 Unilateral cancellation
• We have four circumstances under which a party can unilaterally cancel a
contract without going to court of law, these are 1786-1789:
• 1. where there is a cancellation clause in the contract
• 2. where the debtor has failed to honor certain time limits(1787);
• Not all lapses of time limits lead to unilateral cancellation but, failed to perform
oblations within the period fixed in accordance with Art. 1770, 1774, or 1775 (b).
• Accordingly, the debtor‟s failure to perform his obligations within the time limits
set by the cross-referenced articles 1770 (i.e period of grace), 1774 (I.e period
fixed in the default notice), and Arts 1775 (b) (obligations that are such that they
must be performed within the time fixed) would entitle the creditor to cancel the
contract unilaterally.
 Cont….
• 3. Where performance becomes impossible: “A party may cancel the contract even before the obligation of
the other party is due where the performance by the other party of his obligations has become impossible or is
hindered so that the essence of the contract is affected.” (1778).This provision envisages situation where
performance was possible at the time of the making of the contract but which becomes impossible afterwards.
• 4. Anticipatory breach of contract, Art.1789: When one of the parties an unambiguously communicates his
refusal to perform, the other party may unilateral cancel the contract if he chooses. However, the party
intending to cancel the contract shall give default notice to the refusing party.
• The refusing party may prevent the cancellation of the contract by furnishing, within fifteen days, sufficient
security to guarantee that he will perform his obligations as agreed.
• Nevertheless, if the refusal is communicated in writing, the party intending cancellation is not required to give
default notice, and he may immediately cancel the contract.
• What is the consequence of cancellation? The most important consequence is that the parties shall be
reinstated in the position, which would have existed, had the contract not been made. However, this may not
be sufficient to satisfy him because he may have lost a benefit he could have gained from performance. In this
case, he may claim compensation in addition to cancellation.
 Damages (Compensation) 1771 (2) and Arts 1790-
1805

• Damages is another remedy for a party affected by non-performance. Art.1771

(2) cum 1790; damages can be claimed as an additional or alternative remedy.
• The purpose of compensation for non-performance is to put the victim party in a
position he would have been had the contract been performed.
• Art 1791(1) provides that “ the party who fails to perform his obligations shall be
liable to pay damages notwithstanding that he is not at fault”. However, it shall
be read in conjunction with sub-article 1 of Art 1790, which suggests that not all
non-performances lead to the award of compensation.
• The creditor must show that he has incurred loss or damage as a result of non-
performance. If he shows that, he is entitled to compensation the amount of
which shall be assessed according to the provisions of 1799-1805.
 Defenses available for the party
required to pay compensation:
• 1. The absence of fault: As a general rule, the absence of fault is no defense
to the claim of compensation (see1791 (1)). However, there are certain
exceptions to this. We find the under Arts 1795 and 1796 where in the plaintiff
(creditor) has to proof fault or grave fault on the part of the debtor.
• 2. Force majeure, 1791 (2) states that “ [the debtor] shall not be released
unless he can show that performance was prevented by force majeure”. The a
contrario reading of this provision suggests that the debtor is released of
payment of compensation if he can show that performance was prevented by
force majeure.
• Note: force majeure that occurs after the debtor is put in default cannot
release him of his obligation to pay compensation (see 1798).
 Cont…..
• To conclude, a party who has incurred loss or damage as a result of non-performance may claim compensation by
showing his loss/damage and that this is the result of non-performance.
• The purpose of such damage is to put the victim party in a position would have been had the contract been
performed. Normally, the creditor is not expected to proof that the debtor was at fault. However, in certain
circumstances he has the duty to show the fault or grave fault of the debtor (see 1795 & 1796).
• Once, the liability of the debtor for damage is determined, the next question is to assess the amount of
compensation (damages) to be paid to the creditor.
• Compensation is to be assesses according to the rules of Arts 1799-1805. The basic principle is that compensation
shall be equal to the damage/loss which non-performance would normally cause to the creditor in the eyes of a
reasonable person (see Art.1799 (1)).
• The question is not how much a particular creditor has lost but how much a reasonable person as a creditor would
have lost as a result of non-performance. However, there are lots of exceptions.
• A very important point to note is that in case of money debts, a creditor is entitled to compensation at the rate fixed
under 1803 & 1804 without the need to prove the extent of loss/damage he has sustained as a result of non-
performance. However, the creditor may claim more compensation if the compensation to be assessed according to
1803 & 1804 are not adequate for the greater damage/loss he has sustained (see Art 1805).
 Law of Agency

Agency is a contract Why do we need an agency? Sources of Agency: Art

• Division of Labor
whereby a person, the • 2179
Lack of Expertise in Specific
agent, agrees with another Areas • The operation of the
person, the principal, to • Physical Absence or
represent him and to geographical location of the law
perform on his behalf one or principal • The Contract: is the
• Facilitation of Business
several legally binding • Motive to transact through the
primary source of
activities. Art 2199 CC. Agent agency.
 Agency cont…
Nature of Agency
• It is special contract: established through agency agreement.
• It creates a fiduciary relationship between the agent and the
principal.
• The power of agency is derivative and should be exercised
strictly
• The agent in principle must render a personal service

Scope of Agency
• General Agency: expressed in general terms and
confer the agent the power to do “acts of
management”. For “acts of management”, see article
2204 civil code.
• Special Agency: the agent is authorized to perform a
particular act only. See Art 2205 civil code.
 Agency cont…..

Types of
Agency
Based on their
sources, scope and
nature, Agencies are
classified as follows:
 Agency Cont...
• Based on source: Contractual vs. Legal Agency
A. Contractual Agency
 The relation between agent and principal is based on contract which contain specified terms on the authority and
responsibilities of the agent and the principal.
 The principal may be liable for the actions of the agent within the scope of the agent.
 It can be terminated by mutual agreement, expiration of the contract, or breach of contract by either party.
B. Legal Agency
 The relation between the agent and the principal is created by the operation of the law which can be based on implied
authority, necessity, or the relationship between the parties (e.g., employer-employee relationship).
 The agent has authority to act on behalf of the principal within the scope of their legal authority.
 It can be terminated by the revocation of authority by the principal, the death or incapacity of either party or the completion of
the agency’s purpose.
 The agent may be liable for the wrongful acts done out of the legal authority.
 Agency cont….
Based on the scope of Agency: General vs. Implied Agency
General Agency
It is created through an explicit agreement between the agent and the principal where the principal grants the agent the authority to act on their
behalf.

The agent has broad authority to act on behalf of the principal within the scope of the agency agreement.

Implied Agency
It is not created through explicit agreement but rather by the actions, conduct, or the circumstances of the parties involved.

It arises when it is reasonable to assume that the agent has the authority to act on behalf of the principal.

The Agent’s authority is limited to what is reasonably necessary to carry out the implied purpose of the agency.
 Agency cont…
• Based on the mode of giving agency power: Express vs. Implied or Original vs. Ratified
A. Express Agency
 It is created through explicit agreement stated and agreed upon by both parties.
 It is established through a formal contract or written agreement, clearly outlining the rights, duties, and responsibilities of the principal and the
agent, leaving little room for ambiguity or misunderstanding.
B. Implied Agency
 The agent’s authority is derived from the implied intention of the parties and the reasonable expectations, of third parties dealing with the agent.
A. Original Agency
 It is the relationship that is established from the beginning with the consent and authorization of the principal.
 The agent acts on behalf of the principal from the start, with the principal granting the authority to the agent.
B. Ratified Agency
 It occurs when an agent acts on behalf of a principal without prior authorization or any existing agency relationship. However, the principal
later accepts or ratify the agent’s actions and adopt them as if they had been authorized from the beginning.
 The principal gives retroactive approval to the agent’s actions, treating them as if they were originally authorized and binding.
 Agency cont….
• Based on its nature: Commission Agency, Unauthorized Agency and Forwarding Agency.
 Commission Agency
• It is an agency where the agent acts on behalf of the principal to facilitate the sale or purchase of
goods or services.
• The agent receives commission or compensation based on the successful completion of a
transaction.
• The agent’s authority is limited to specific types of transactions and may be defined by a contract or
agreement between the principal and the agent.
• The agent acts as an intermediary between the principal and third parties, negotiating and
executing transactions on behalf of the principal.
 Unauthorized Agency/Undisclosed agency or Secret agency
• It occurs when the agent acts on behalf of the principal without disclosing the agency relationship
to third parties. So, the third parties are unaware of the agency relationship.
• The principal is not directly liable to third parties until the agency relationship is disclosed.
 Agency cont….
Forwarding Agency/Shipping Agency/freight
forwarding Agency

It is a specialized type of agency involved in the transportation

and logistics industry.
The forwarding agent assists in the transportation of goods or
cargo, arranging for the shipment, documentation, and other
related services.
The agent acts as an intermediary between the principal (shipper
or assignee) and various transportation providers (such as
shipping lines, airlines, and trucking companies) to ensure the
smooth movement of goods.
The agent may handle custom clearance, insurance,
and other logistics services on behalf of the principal.
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 Sale Contract

• contract
Sale There should
is one be a Seller-Buyer
form relationship,
of special contracts there
with its must befeatures.
distinctive delivery of specified thing(s),
• Ownership has to be transferred from the seller to the buyer, the price should be paid in money.
• According to the wording of the above article, delivery of the thing or payment of price at a spot is not a
prerequisite for a sale contract but the obligation to undertake it once the contract is formed.
• Payment of price in terms of money is what distinguishes sale contract from Barter transaction where goods are
exchanged for other goods.
•
Sale Without transfer
contract creates of afull ownership from
seller-buyer the seller whereby
relationship to the buyer,
boththere
of is
thenoparties
contracthave
of sale formed.
a reciprocal rights
• The seller cannot sale the thing by retaining its ownership title with himself.
and duties against each other.

“Contract of sale is a contract whereby one of the parties, the seller, undertakes to deliver a thing
and transfer its ownership to another person called the, Buyer, in consideration of a price
expressed in money which the buyer undertakes to pay.” Art 2266 Civil C

From the above definition we can deduce the following basic elements
for sale contract to exist:
 Sale cont…
• The Scope of sale contract is sale of the principal thing with its intrinsic elements & accessories thereto. Unless there
exist is a prior agreement otherwise, sale of a thing includes intrinsic elements and accessories (Art 2268 and 1133-1139
of the Civil C).
• Sale Contract does not apply to sale of special movables such as car, machines, TV, Motor Vehicles, Air Crafts, Ships,
etc (Art 2267 C.C).
• Sale contract on future things to be supplied or produced is possible. In such cases, substantial part of the thing should
be supplied by the seller.
• If substantial proportion of the thing is supplied by the buyer, the contract is a contact of service, not a sale contract.
For example, if you provide a suit garment to the tailor to make a suit for you, then the tailor is only providing you a
tailoring service not selling a good to you.
Formation of Sale Contract-
• Sale contract has no special process of formation different from other contracts as such. All rules & principles of
contract in general are equally applicable to sale contract. All fundamental elements for the formation of a valid contract
such as capacity, object, consent & form should be complied with to form a sale contract.
 Sale cont…
 The rights and Duties of the parties to sale contract
• The rights & duties of the parties are simply to mean performance of the contract. So, questions
such as who, what, where, when, & how to perform are pertinent to determine the rights and
duties of the buyer and the seller.
• The seller has to deliver a thing its intrinsic elements & accessories which are free from defect,
non-conformity, & transfer full ownership free from any encumbrances.
• The seller should deliver the thing of the same quality, quantity & species (Art 2288-2290 of the
C.C). The seller should a warranty against defect or dispossession & Bear some costs & expenses
& cooperate in good faith.
• Delivery of the thing is very important to determine with whom risk lies. Up on deliver or after
delivery date lapsed, risk is transferred from the seller to the buyer!
 Sale cont…
• The buyer has an obligation to pay price on the fixed date or up on demand. The payment of price should be as
agreed in the contract. Of course, the primary obligation of the buyer is to effect payment on time (Art 2303 of
C.C). Payment of some expenses and costs & showing cooperation is also the duty of the buyer.
• The ordinary place of performance is the place fixed by the parties in their contract. In the absence of contrary
stipulation, the seller has to deliver the thing at his normal residence or place of business. The buyer should also
make payment at the same place (see Arts 2287 and 2309 of the C.C).
• -In most cases, performance is made simultaneously. The buyer should pay at sight when s/he takes delivery of
the thing or when demanded by the seller. However, the parties can agree otherwise.
• The mode of performance of a sale contract is as agreed by the parties in the terms of their contract. For instance,
the parties may agree for successive delivery of the thing or installment payment.
• Failure to perform according to the terms of the contract constitutes non-performance. Delivering defective or
non-conforming thing, transfer of non-pure ownership, partial delivery, failure to pay price or performing to a
wrong person, at a wrong time & place and in a different mode constitutes non-performance.
 Sale
cont…
Remedies for Non-performance are:

The Cancellation of the contract by giving a default notice to

the defaulting party (Mutual, Unilateral, and Legal or default
and judicial as may be appropriate), Compensation and Specific
or forced performance.
The least availed remedy for non-performance of sale contract
is forced performance. Because there is no freedom of the
seller at stake and substituted performance is easily possible in
most of the cases.

Personal service of the seller is not required; rather it is

delivery of the thing.
 Sale cont…
 Different Forms of Sales
There are different forms of sale contract owing to their particular nature. The ff are the main forms of sale contract stipulated
under the Civil C.
A. Sale of Cattles- Sale of cattle is different from other forms of sales due to the reason that living animals needs special care for
the protection of the buyer and the public at large. Animals need vaccination before being delivered to the buyer & they have
to be properly handled during transportation and should fit for the specific purpose they are destined for ( Arts 2368 and ff).
B. Sale by Sample-the unique feature of sale by sample is that the final thing to be delivered by the seller should exactly
conform to the sample given (Art 2377 of C.C).
C. Sale on Trial- it is a sale which is effective after the buyer tested the thing by using it for some time and agrees with its
quality. The contract is not concluded even though the thing is delivered to the buyer for trial. So, in case of sale on trial,
delivery precedes the sale proper & the risk remains with the seller (Art 2380 and ff).
D. Sale by Installments-it is sale contract in which delivery of the thing or payment of the price is at different interval.
 Sale cont…
E. Sale with Ownership Reserved-it is a sale contract whereby the seller delivers the
thing to the buyer but reserves ownership right until the buyer pays the price. The risk
is transferred to the buyer up on delivery of the thing (Art 2387 and ff of the C.C).
F. Sale with right of Redemption-it is a form of sale which gives a seller a prerogative
to reclaim the thing s/he sold if s/he demands it within specific period of time (2390
of the C.C).
G. Sale with the Obligation to forward the thing-In this kind of sale the seller has the
obligation to forward or transport the thing to the buyer (Art 2394 and ff of the C.C).
H. Sale by Auction- it applies to sale made through tender or bid process. Contract is
concluded when the final hammer is knocked down (Art 2403 and ff of the C.C).
 Insurance Law

• Insurance policy is defined as a contract whereby the Insurer insures the insured against a risk
against the payment of one or more premiums and pays a sum of money when the risk
materializes (Art 654 of the Com C).
• Thus, Insurance is: a conditional contract in which the obligation of the insurer is contingent up
on the occurrence of a specified risk. Insurance contract is always in a written and special form.
• The insured pays premiums and the insurer pays a fixed amount of money and sometimes
maintains or replaces the thing
• Insurance is against pure future risk not for speculative risk
• The main functions of Insurance are: to distribute loss, management of risk, to have a peace of
mind, for investment, for social security, to pool resource together, etc.
 Insurance cont…
Fundamental Principles of Insurance are:
Principle of Insurable Interest-the insured has to show some rights or interests over the thing he
wants to insure at the time of the contract, on the day when risk materializes or both;

Principles of utmost good faith-both parties need to cooperate in a good faith to mitigate risk. The insured has to reveal all material facts that
affect the risk management and mitigate the risk or loss from being materialize, while the Insure has to give a genuine guarantee of the risk

Principle of Indemnity- Insurance is to compensate the insured or the beneficiary not for profit

Principle of contribution-the amount of the compensation should be assessed based on the extent
of contribution of each parties to the risk
Principle of Subrogation-the insurer has the right to claim what he paid from the person caused a
damage by representing the insured or the beneficiary
 Insurance
cont…
• Classification of Insurance
• General Classifications under the Ethiopian Law
• Marine Insurance-insurance for marine Marine Insurance
• Property Insurance Navigation
• Fire Insurance Liability Insurance
• Liability Insurance-Insurance for the liability Illness and Accident Insurance
Towards 3rd party
• Life Insurance-death, Illness, accident and old age Life Insurance
 Insurance
cont….
The Rights and Duties of the Party
• Of the Insurer-to give full coverage or guarantee of the risk, pay the
fixed amount of compensation and cooperate in ut most good faith
• Of the Insurer-to reveal all material facts, mitigate risk or loss and to
exert ut most good faith.
• Stopped for Management Class.
 Negotiable
Instruments
Negotiable Instruments are documents which embody enforceable right stated in terms of
money and which cannot be enforced or be transferred separately from the document itself (See
Art 715 of the Commercial code).
Nature of Negotiable Instruments
• -They are document which substitutes liquidated money
• -Serve as a credit device
• -Easily transferable or can be negotiated with
• The main purposes of negotiable instruments are for security of transaction, to facilitate
trade, for easy portability, to negotiate rights through easy transfer, to evidence claims, etc.
 Negotiable
Instrument cont….
 There are 3 main categories of Negotiable Instruments in Ethiopia (Art 715(2) of the Com C):
Commercial Documents, Transferrable Securities and Documents of title to good.
• Commercial Documents are: Check, bill of exchange and Promissory Note.
• Check- is the most prominent form of commercial document. There are 3 parties in check-the drawer
(the person who prepared the check), the drawee (the Bank) and the payee (the beneficiary).
• Check can only be issued by the Bank. It can be transferred through mere delivery for Bearer Check
and endorsement in case of to order or specific person Check. Endorsement is signing on the back
side of the Check.
• Bill of exchange is a document which is drawn by the creditor to evidence his claim. This document
should be presented to the drawee so that he can get paid. It is Transferable through endorsement as
there is no bearer bill of exchange.
 Negotiable Instrument
cont….
• Promissory Note is a document which is prepared by the debtor and given to the creditor as an
evidence of outstanding claim. There are only two parties in promissory Note, the Drawer and the
Payee. It is always paid on Maturity date not at sight or on demand.
• Commercial Documents are paid at sight, on demand or on maturity date.
• Transferable Securities are Negotiable Documents which bear some enforceable rights. They are not
prepared as a commercial Document. They are Shares, Insurance Policy, Bond, etc. They can also
be transferred or negotiated just like other Negotiable Instruments.
• Documents of Title to Good-they are documents which show that goods are shipped or received. Bill
of Lading, Air Ticket and Warehouse Vouchers are considered as a document of title to good.
• Defenses in regard to Negotiable Instruments are: Defect in form, falsification of signature, forgery,
fraud, fundamental error and stoppage order.
 Law of Banking Transactions

 The banking services in Ethiopia are(See Art 2 of Procl No 592/2008):

• Deposit of money, transfer of money, granting of loan, issuing some Commercial Documents, hiring of
safe, depositing of transferable securities and documents, buying transferable securities at discount,
collection of debt , providing financial guarantee.
• Contracts for Banking Service are formed up on opening an account or agreeing to get other banking
services.
• There are two types of accounts: Saving Account and checking Account.
A. Saving Account always presupposes payment of interest unless agreed otherwise. Interest is not paid on
checking Account.
B. Checking Account is opened by two or more business persons jointly to easily transfer money between
or amongst them.
 Banking Transactions cont….

• Deposit can be demand or time deposit. Demand deposit allows the account
holder to withdraw money on demand while time deposit limits withdrawal
to the lapse of some fixed period of time.
• Withdrawal in excess of the deposited amount is not possible in principle.
But the Bank on its own discretion may allow its outstanding and
trustworthy customer to withdraw in excess as a credit.
• Bank may refuse payment when it finds error, mistake or inconsistency,
irregularities and it receives as an order of bankruptcy of the account holder.
 Employment and Labor Law

• Employment and Labour law is the body of laws which address the legal rights of,
and restrictions on, workers and their employers. As such, it mediates many aspects
of the relationship between trade unions, employers and employees.
• There are two broad categories of labor law.
• First, collective labour law relates to the tripartite relationship between employee,
employer and union.
• Second, individual labour law concerns employees' rights at work and through
the contract for work. This chapter tries to give students a general insight of
individual labour relation from its formation to termination.
 Employment cont…
 Sources of regulation
• There are three types of legal regimes regulating employment relation in Ethiopia. These are:
• Employment relations in private organizations and public enterprises.
• Civil servants who are working in federal and government agencies.
• The other covers a wide range of employees who are not covered by the above two legal regimes
and governed by independent legislations. These include military, police force, judges, public
prosecutors, higher government officials, etc.
• As a matter of business law, this chapter is limited to the first group of employment relations. The
central statute regulating employment relation in the private sector in Ethiopia is the Labour Procl,
adopted in 2003 (Labour Procl No. 377/2003) and most recently amended in 2006 (Labour
(Amendment) Procl No. 494/2006).
 Employment cont…

• Upbringing, treatment, care or rehabilitation;

Scope of legislation
• Educating or training, other than as an apprentice;
• Persons holding managerial posts who are directly engaged in major managerial
functions and who give decisions within the power delegated to him/her by law or the
employer;
• Personal service for non-profit-making purposes;
• Persons such as members of the armed forces, members of the police force, workers of
state administration, judges of courts of law, prosecutors and others whose employment
Therelationship
Labour Proclamation
is governed byisspecial
generally
laws;applicable
or to employment relations
based on a who
• Persons contract of an
perform employment betweenofa payment,
act, for consideration worker and an employer.
at his/her own business or
professional
However, responsibility
it does not apply under
to theafollowing
contract ofemployment
service relations arising out of
a contract of employment. (Arts.3(2) of Labour Procl No. 377/2003) :
 Employment cont…
 Contracts of Employment
• Employment relation is established through a contract of employment and it shall be deemed formed where a person (the employee)
agrees, directly or indirectly, to perform work for and under the authority of another (the employer) for a definite or indefinite period
or piece work in return for wages.
• According to this article, there are four basic elements of employment relation. Let us try to examine these elements of the definition.
A. Agreement: agreement is the basis for employment relation and this automatically excludes forced labor from the ambit of
employment relations. Hence a person cannot be compelled to enter into an employment relation.
B. Personal performance of work: the employee is committing him/her/self to render personal service for the benefit of the
employer. The employee, as of right, cannot delegate third parties to perform the job in his/her behalf.
C. Duration of employment: a contract of employment could be entered into either for definite period (for six months, for one year
etc), or for indefinite period (i.e. for the life of the company), or for a specific assignment (to unload sacks of grain from a truck).
D. Wage: The employer will be expected and required to pay wage to the employee. Hence employment relation is not a pro bono
service. On the contrary, it is a service in return for wages. The mode of payment for wage could be in cash or in kind though
ordinarily payment is effected through cash. As regards to the interval of payment, it could be in daily, weekly, bi-monthly,
monthly etc.
 Employment cont…
 Form of contract of Employment
• The labour law regime in principle does not require any special form for contractual
validity. This means employment relation may be formed in many ways.
• It may result from a simple oral agreement between two individuals, or it may be
created by a detailed written contract.
• What matters is the existence of agreement between the employer and employee and
fulfillment of other elements discussed above.
• A contract of employment shall specify the type of employment and place of work the
rate of wages, method of calculation thereof, manner and interval of payment and
duration of the contract.
 Employment cont…
• If the contract is concluded in writing, according to article 6 of the labour proclamation, it shall specify the following:
A. the name and address of the employer;
B. the name, age, address and work card number, if any, of the worker;
C. the agreement of the contracting parties; and the signature of the contracting parties
 Length of employment
• As regards to duration, as mentioned above in the definition, a contract of employment could be entered into either for
definite period, for indefinite period, or for a specific assignment.
• Unlike marriage, which is, in principle, is a lifelong engagement; there is no as such lifelong contract of employment.
• However, the Ethiopian Labor law clearly stipulates, in article 9 of the proclamation, any contract of employment
shall be deemed to have been concluded for an indefinite period (permanently) except for the cases provided under
Article 10 of the proclamation.
 Employment cont…
• The cases where contract of employment for definite period or a specific work is allowed are the
following:
• the performance of specified piece work for which the employee is employed;
• the replacement of a worker who is temporarily absent due to leave or sickness or other causes;
• the performance of work in the event of abnormal pressure of work;
• the performance of urgent work to prevent damage or disaster to life or property, to repair defects or break downs in
works, materials, buildings or plant of the undertaking;
• an irregular work which relates to permanent part of the work of an employer but performed on irregular intervals;
• seasonal works which relate to the permanent part of the works of an employer but performed only for a specified period
of the year but which are regularly repeated in the course of the years;
• an occasional work which does not form part of the permanent activity of the employer but which is done intermittently;
• the temporary placement of a worker who has suddenly and permanently vacated from a post having a contract of an
indefinite period.
 Employment cont…
• The temporary placement of a worker to fill a vacant position in the period
between the study of the A person may be employed for a probation period for
the purpose of testing his suitability to a post in which he is expected to be
assigned.
• When the employer and employee agree to have a probation period, the
agreement shall be made in writing and cannot exceed forty five (45) consecutive
days (not working days).
• What makes probationary employment different is, during the agreed time of
probation both the employer and employee are legally entitled to terminate the
contract of employment without good cause.
 Employment cont…
Minimum working conditions
• Unlike most contractual engagements where the parties to the contact are left alone to
determine the terms of their contractual relation, employment relation has its bench marks (the
so called minimum working conditions) below which the terms of the contract may not
stipulate.
Working time
• Hours of work :- Art 61 provides that normal working hours shall not exceed 8 hours a day or
48 hours a week (Art 61). Workers are entitled to a weekly rest period of 24 non-interrupted
hours in a period of 7 days.
• Unless otherwise agreed, according to Art 70 of the proclamation the weekly rest should be on
Sunday, but another day may be chosen for certain services.
 Employment cont…
• Any work exceeding the normal working time of 8 hours a day or 48 hours a week is overtime. Overtime
work is in principle prohibited. Overtime is only permissible for up to 2 hours a day, or 20 hours a
month, or 100 hours a year, and only in the following exceptional circumstances listed in Art 67:
• Accident, actual or threatened
• Force-majeure
• Urgent work
• Substitution of absent workers assigned on work that runs continuously without interruption
The rate of payment for overtime work is more than the rate in the normal working hour. The proclamation
defines the overtime payment in Art 68 (1).
The overtime payment ranges from a rate of one and one quarter (1 ¼) of the ordinary hourly rate (from 6
a.m. to 10 p.m.) to two and one half (2 ½) on public holidays.
 Employment cont…
 Paid leaves
• Any worker is entitled to uninterrupted annual leave with pay. As per Art 77, the annual leave in no case be
less than 14 ‘working days’, plus one working day for every additional year of service. Art 76 forbidden to
pay wages in lieu of the annual leave.
• Sick leaves and public holidays are also items of minimum working conditions. Where a worker is rendered
incapable of work owing to sickness he shall be entitled to a sick leave of up to six months per year. The
payment for the period of sick leave is:
• For the first one month with 100% of his wages;
• For the next two months with 50% of his wage;
• For the next three months without pay.
Public holidays observed under the relevant law are also non working days and at the same time paid holidays.
An employee who works on a public holiday is entitled to the double of his or her ordinary hourly wages.
 Employment cont…
 Maternity leave and maternity protection.
• Art 35 of the Constitution of Ethiopia grants the right to maternity leave with full
pay. A pregnant employee is not permitted to perform where it could be hazardous
to her or the child's health. Night work is not generally prohibited, nor shall she be
assigned to overtime-work.
• Moreover, she shall not be given an assignment outside her permanent place of
work and be granted time off for medical examinations.
• Female employees are entitled to maternity leave, which is to start from 30 days
prior to due date of birth (pre natal), and end not less than 60 days after birth of the
child (post natal).
 Employment cont…
 Safe and Healthy working conditions
• An employer shall take the necessary measure to safeguard adequately the health and safety of
the workers. (Art 92)
• Corresponding to the obligation of the employer, a worker is also duty bound to make proper
use of all safeguards, safety devices and other appliance furnished for the protection of his
health or safety and for the protection of the health and safety of others.
• Reforming the Labour Proclamation No. 1156/2019 achieved mixed
results. For instance, the law established a tripartite minimum wage
board; increased the minimum working age from 14 to 15; extended the
existing maternity leave and introduced paternity leave for male
employees.
• Although the Labour Proclamation No. 1156/2019 reformed the labour-
related legal framework, it still raises several issues.
• Some critical aspects are that legislation prohibits managerial employees,
teachers, healthcare workers, judges, prosecutors, security-service workers,
domestic workers, and seasonal agricultural workers from organising unions.
A list of essential services in which strike action is prohibited still includes
several divisions like air transport services; electric power supply; water
supply and city cleaning and sanitation services; urban light rail transport
service; hospitals, clinics, dispensaries, and pharmacies; fire brigade
services; telecommunication services. The quorum required for a strike ballot
stays high, at least two-thirds of the members of the trade union.
• The labour legal framework mainly applies to employees while informal
workers are sidelined, representing about 85% of employment. Besides,
the government is not effectively enforcing applicable labour market
regulations due to public institutions have insufficient staff and funding.
• the Ethiopian Ministry of Labour and Social Affairs did not recognise the
National Teacher’s Association (NTA) as a trade union. Also, the
Charities and Societies Proclamation No. 621/2009 gave governmental
authorities great discretionary powers to interfere in the right to
organise workers and employers in the registration, internal
administration and dissolution of the organisations falling within its
scope.
• According to the Labour Proclamation, employers have the right to establish and
form employers’ associations and actively participate therein. It has no provision for
a minimum number of members or representativeness criteria for the establishment
of an employers’ organisation.
• The Industrial Employers Confederation (IEC) was the only organisation to represent
employers and their associations at the national level. However, a competing
organisation, the Ethiopian Employers’ Confederation (EEC), entered the scene in
2001. The two organisations established a coalition called the Confederation of the
Ethiopian Employers Federations (CEEF). The CEEF was merged in 2018 with the
Ethiopian Employers’ Federation (EEF) and nine federations; the EEF remains the
largest and the leading force within CEEF.
• CEEF is an International Organization of Employers (IOE) member.
• And the Ethiopian Chambers of Commerce active in business advocacy and
coordination but not in tripartite fora nor in bipartite relations with the
Confederation of Ethiopian Trade Unions (CETU) or The Ministry of Labour and
Skills (MoLS).
• The Labour Proclamation No. 1156/2019 introduced one or more Permanent
Labour Relations Boards (PLRBs), which should be established in each Regional
State as necessary. When disputes arise on labour matters and fail through
social dialogue mechanisms at the bipartite level, they go to appeal to the PLRB
to get justice based on tripartite composition. PLRBs are situated in Addis
Ababa and Dire Dawa city administration with the legal authority of high
courts. Since it comprises social partners, judges that are assigned for the court
require better qualifications or competence.
• The Labour Proclamation No. 1156/2019 brought an alternative dispute settlement
mechanism for labour issues linked with the social dialogue framework. This new system
could decrease the courts’ case backlog.
• The ADR system brings employers and employees, or their respective associations, to
introduce social dialogue into their employment agreements, work rules, and collective
agreements to legally prevent and resolve labour disputes amicably.
• It is popular in the Western legal system as a means of conflict resolution because it is
cheaper and faster and has built bridges of friendship. By the same token, if a party is
distressed by the ADR decision, they may take the case to the Labour Relation Board or
the appropriate Court.
• This new ADR system remains novel, though, and as previously mentioned, the industrial
relations at the enterprise level remain underdeveloped, challenging its efficiency and
impact.
Termination of contract of employment

• In Ethiopia there are three ways to terminate a contract of employment:

1. By the operation of the law,
2. Agreement between both parties
3. Unilateral termination or termination by either the employer or employee
 Termination by the operation of the law

In some instances, specifically prescribed by the law, contract of employment will be

automatically terminated. As per Art 24 of the Labour Procl, a contract of
employment may be terminated by law on the following grounds:
• Expiry of the period or on the completion of the work where the contract of employment is
for a definite period or piece work.
• Death of the worker.
• Retirement of the worker in accordance with the relevant law.
• When the enterprise ceases operation permanently or due to bankruptcy or for any other
cause; or
• Where the worker is unable to work due to partial or permanent incapacity.
 Employment cont…
 Termination by the agreement of both parties
• The parties (employer and employee) may terminate their contract of employment by
agreement. Yet, a waiver by the worker of any of his/her rights under the law has no legal
effect. In addition, the termination by agreement is effective and binding on the worker only
where it is made in writing.
 Unilateral termination
• This is the case where either the employer or the employee unilaterally calls for the
termination of contract of employment. These take two forms.
• Termination of contract of employment by the initiation of the worker (resignation)
• Termination of contract of employment by the initiation of the employer (dismissal)
 Resignation

 Generally, a worker can terminate the contract of employment (resign)

giving prior notice of fifteen days. The worker may also terminate his/her
contract without notice for good cause (constructive dismissal) such as in
the following cases:
• Where the employer has committed against him/her any act contrary to his/her
human dignity and morals or other acts punishable under the Penal Code.
• In the case of imminent danger threatening the worker’s safety or health, the
employer, having been made aware of such danger, failed to act within the time-
limit in accordance with an early warning given by the competent authority or
appropriate trade union or the worker him/herself to avert the danger.
 Cont…
• If the employer has repeatedly failed to fulfil his/her basic obligations
towards the worker as prescribed under the LP, collective agreements,
work rules or other relevant laws.
• Where a worker terminates his/her contract of employment for the above
reasons, he/she must inform the employer, in writing, of the reasons for
termination and the date on which the termination is to take effect.
• However, the worker’s right to terminate such contract lapses after fifteen
working days from the date on which the act occurred or ceased to exist.
 Dismissal
• A contract of employment may only be terminated, at the employer’s
initiative, where there are grounds connected with the worker’s conduct or
with objective circumstances arising out of the worker’s ability to do
his/her work or the organizational or operational requirements of the
enterprise.
• In this case, the dismissal may be summary dismissal (without notice) or
ordinary dismissal (with notice).
 Termination without notice (summary
dismissal)
• A contract of employment shall be terminated without notice on the following grounds only. If any of
the following things happen the employer is entitled to terminate the employment of a worker
without being required to give the employee a notice period (i.e. from one to three months period
based on the workers service period).
• Repeated and unjustified tardiness despite warming to that effect,
• Absence from the work without good cause for a period of five consecutive working days or ten
working days in any period of one month or 30 working days in a year,
• Deceitful or fraudulent conduct in carrying out his duties having regard to the gracing of the case,
• Misappropriation of property or fund of the employer,
• Producing a work output below the qualities and quantities agreed which, despite the potential of the
worker is persistently,
 Employment cont…
• Responsibility for brawls or quarrels at the work place.
• Conviction for an offence where such conviction renders him incapable for the post
which he holds.
• Responsibility for causing damage intentionally or through gross negligence to any
property of the employer or to another property which is directly connected with the
work of the undertaking.
• Intentionally commit in the place of work any act which is endangers life and property.
• Take away property from the work place without the express authorization of the
employer.
 Cont…
• Report for work in a state of intoxication.
• Except for HIV/AIDS/ test, refuse to submit himself for medical examination when required by law or by the
employer for good causes.
• Refuse to observe safety and accident prevention rules and to take the necessary safety precautions
• Commission of other offences stipulated in a collective agreement as grounds for terminating a contract of
employment without notice.
• Absence from work due to a sentence of imprisonment passed against the worker for more than 30 days.
• Where an employer terminates a contract of employment because of the above reasons, he shall give written
notice specifying the reasons for and the date of termination within 30 days.
• The right of the employer to terminate the contract due to the above provisions lapses after 30 working days
from the date that the employer has knowledge of the ground for the termination.
 Termination with notice (ordinary notice)

• The following are sufficient grounds for the termination of a contract of employment with notice.
• The worker’s manifested loss of capacity to perform the work to which he has been assigned or his
lack of skill to continue his work,
• If the worker, for reasons of health or disability, permanently, is unable to carry out his obligations
under the contract of employment,
• The worker’s unwillingness to move to a locality to which the undertaking moves,
• When the post of the worker is cancelled for good cause and the worker cannot be transferred to
another post.
• The notice of termination by the employer shall be handed to the worker in person. Where it is not
possible to find the worker or he refuses to receive the notice, it shall be affixed on the notice board
in the work place of the worker for ten consecutive days.
 Period of Notice
• Period of notice means the number of days the employer should give for the worker before
the termination of the contract. This Period of notice ranges from one to three months based
on the period of service of the worker.
• One month in the case of a worker who has completed his probation and has a period of
service not exceeding one year.
• Two months in the case of a worker who has a period of service a above 1 year to 9 years.
• Three months in the case of a worker who has a period of service of more than nine years.
• To months in the case of a worker who completed his probation and whose contract of
employment is terminated due to reduction of work force.
 Reduction of workers

• The other ground of dismissal in Ethiopia is Reduction of Workers. Reduction of workers can be made when the following
requirements are fulfilled.
• Fall in demand for the products or services of the employment resulting in the reduction of the volume of the work and
profit of the undertaking & there by resulting in the necessity of the reduction of the work force,
• A decision to alter work methods or introduce new technology with a view to raise productivity resulting in the reduction
of the work force,
• Any event which entails direct and permanent cessation of the worker’s activities in part or in whole resulting in the
necessity of a reduction of the work force.
• Reduction of workforce is said to occur when the above grounds occur, and affect a number of workers representing at
least ten percent of the number of workers employed or, in the case of an undertaking where the number of employees is
20-50 a reduction of workers affecting at least 5 employees over a continuous period of not less than 10 days can be made.
• In this case, the employer in consultation with the trade union or its representative shall give priority of being staying in
job, for those workers having higher rate of productivity and best skills.
 Employment cont…
In the case of equal skill and rate of productivity, the workers to be
affected first by the reduction shall:
1. Those having the shortest term of service in the undertaking,
2. Those who have fewer dependents,
3. Those who are disabled due to an employment related injury in undertaking,
4. Workers’ representatives,
5. Expectant mothers
 Employment cont…
 Remedies in case of unjustified dismissal
• A worker who intends to challenge the validity of his or her termination must file a submission before a
regional first instance court. If the termination proves to be unlawful, the proclamation gives the choice of
remedies.
• The court may:
A. Order the employer to reinstate the employee from any date not earlier than the date of dismissal.
B. Order the employer to pay compensation to the employee.
• The primary remedy in respect of an unlawful termination is to order reinstatement or re-employment.
• In the event that the employee does not wish to be reinstated or re-employed or the circumstances are such
that a continued employment would be either intolerable or no longer reasonably practical and would give
rise to serious difficulties, the court may award compensation rather than reinstatement/re-employment,
even in cases the worker wishes to be reinstated.
 Employment cont….
• The compensation will be paid in addition to the severance payment. There are,
however, certain limits on compensation.
• The compensation will be hundred and eighty times the average daily wages and
a sum equal to the remuneration for the appropriate notice period in the case of
an unlawful termination of permanent worker, and a sum equal to the wages that
the worker would have obtained until the lawful end of his contract.
• Compensation to be paid by the worker who has terminated his or her contract
contrary to the provisions of the Proclamation shall not exceed fifteen days
wages of the worker.
 THANKS FOR ATTENTION!

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change the world! -Nelson Mandela