Business Law in Ethiopia Dilla University

“Business law” refers to the whole regulatory environment in which individuals or ‘organizations’ engage regularly for the purpose of securing commercial returns. It is a legal regime with the object of shaping the behavior of “actors” in business transactions. There is a vested interest for the law, like any other human relationships it claims to regulate, to step into the work-for-profit areas in order to ensure that commercial interactions are conducted in a proper manner.

The legal regulation of business is even more sensitive because engagement in business is an extension of a constitutional right to property so that there must be a mechanism of the law that enables individuals to be shielded against unwelcoming practices that prejudice their right without of course affecting the rights of others. The law of commerce is indispensable not only from the view point of individual right to property but also because it constitutes a fundamental economic unit of a nation’s economic performance and status as a whole.

In this sense, business law makes a huge contribution to the strong economic wellbeing of a state and to the accompanying betterment of society’s economic position. The legal framework that governs business activities prescribes the conduct required of business-persons in their commercial life, and solves business disputes in the ultimate aim of keeping the tranquility of the business environment.

The Ethiopian “law of business” would also have as its object the advancement of the above interests. This module centers upon the Ethiopian law with the fair treatment of the relevant fundamental principles of law that are generally accepted in the business world. It is particularly concerned with such visible areas as contracts, agency, sales, commercial instruments and insurance among other things. These areas substantially impinge upon economic sphere of interactions and, therefore, important for business people and other actors.

The course is designed to equip students with fundamental legal tools when deal with business matters. You would be enabled to overcome various business challenges involving legal questions in your future professionalcareers. It is hoped that you are already well aware of general business ideals. Therefore, it suffices that you possess basic knowledge in economic and business principles. You are going to be briefly introduced about the law in this module.

The structure of the module is such that first considerations about law in general are made. Then follows the exploration of the legal regime whereby legal transactions emerge, the law of personality. The law of contracts, a relatively wider and indispensable area for you as a businessperson, comes next. Special types of contracts, agency and sale, are also separately treated because of their fundamental importance to the business world and will appear in the module in that order.

Principles of modern commercial law, as contained in the 1960 Commercial Code of Ethiopia would mark the completion of this peace of writing. Traders and business organizations, insurance and negotiable instruments are addressed under this part. The module contains a number of self-check and summary questions at the end of each chapter. You are strongly advised to attempt all those questions and check your understanding of the matters covered in this module. Well come to business law. I wish you good study.



The successful completion and study of this chapter is expected to be accompanied by the attainment of the following objectives: – Distinguishing between/among the various schools of juridical thought that evidence the absence of a generally agreeable definition of the word “law”;

– Noticing that law is more understood in terms of its features and functions rather than interims of what it is;

– Specifically internalizing the functions law performs in a society and those of business law in particular;

– Identifying the important legal matters in business interactions,

– Analyzing the pros and cons of resolving disputes in business by courts versus alternative dispute resolution techniques.

1. Meaning of Law and Schools of Jurisprudential Thought

There have been and will continue to be different definitions of law. Various renowned scholars and jurists have so far been making their own assertions of what law is, and almost none of them concur on the definition of law. The Greek philosopher Aristotle for instance thought of law as a “pledge that citizens of a state will do justice to one another”. Aristotle’s student, Plato, asserted that law was a form of social control. Cicero, a Roman philosopher, believed law was the agreement of reason and nature, the distinction between the just and the unjust. The British legal scholar Sir William Blackstone described law as “a rule of civil conduct prescribed by the supreme power in a state, commanding what is right and prohibiting what is wrong”.

The famous US Supreme Court Justice Oliver Wendell Holmes on his part contended that law was a set of rules that allowed one to predict how a court would resolve a particular dispute – “the prophesies of what the courts will do in fact and nothing more pretentious …”. One can easily notice that all these attempts of defining law are based on varied particularities, even though a general observation may be inferred concerning the nature of law, which will be discussed in brief very shortly.

In jurisprudence, or the study of law, the broad statement concerning the nature of law is the point of departure for all legal scholars and philosophers. Now we come to the discussion of the most influential schools of thought that have embodied the contentions in the discourse of defining law. Legal philosophers and scholars frequently disagree on what the proper function of law should be and their disagreements have produced different schools of jurisprudence, or philosophies of law.

a) The Natural Law School

This is the oldest and one of the most significant schools ofjurisprudence. The proponents of the natural law school of jurisprudential thought assert that “government and the legal system should reflect universal moral and ethical principals that are inherent in human nature”.

While according to natural law theorists there can exist a positive, or conventional, or state-made, law which is operative only within the political jurisdiction of the concerned state, such law would be valid only if it accords with natural law, which takes higher order and which is neither spatial nor temporal. This means that natural law is universal; it transcends any particular country’s written laws (or positive laws) and that it is not time and space specific. In short, the natural law tradition presupposes that the legitimacy of conventional, or positive, law derives from national law; and whenever it conflicts with natural law, conventional law loses its legitimacy and should be changed.

The world had experienced the practical application of natural law in the resolution of real cases in the past World War II period. The Nuremberg trial of Nazi war criminals for “Crimes Against Humanity” at the end of the WW II was conducted by making appeal to this higher law. Although these criminals may not have disobeyed any positive law of their country and may have been merely following their government’s orders, they were deemed to have violated a natural law that transcends any law imposed by state.

The natural law school of thought encourages individuals to disobey positive or written, laws if those individuals believe that the written laws are in conflict with natural law. Accordingly, persons who felt that America’s involvement in Vietnam during 1960’s and early 70’s was wrong used natural law as their reason to violate written laws when they protested America’s war effort.

b) The Positivist School

At the other end of the spectrum is the positivist school, and those who adhere to this school believe that there can be no higher law than a nation’s positive law. This means that significance and final validity would be placed in law created by a particular society at a particular point intime.

In the positivist perspective, the law is the law and must be obeyed irrespective of its content. The merits and demerits of a particular law can be discussed and laws can be changed in an orderly manner through a legitimate law making process. But as long as a law exists, it must be obeyed; and whether a given law is good or bad is irrelevant in so far as it has assumed its status following a duly constituted procedure.

c) Legal Realism

This school is propounded by thinkers who were rebelling against some of the common assumptions regarding law of the contemporary legal theorists and jurists. The discourse of the legal realists principally contained three-fold aspects. Firstly, they were opposed to the assumption that judges, at least ideally, apply the law impartially, logically and uniformly. The legal realists rather firmly believed that each judge is influenced by the beliefs and attitudes unique to his/her personality. Second, they claimed that each case is attended by a unique set of circumstances and that no two cases, no matter how similar, are ever exactly the same. Therefore, according to the realists, judges should tailor their decisions to take account of the specific circumstances of each case rather than rely on some abstract rule that may not relate to those particular circumstances.

Thirdly, the advocates of legal realism constructively influenced legal thought in that they called on judges to consider extralegal factors, such as economic and sociological data, in making decisions, to the extent that such non-legal sources illuminate the circumstances and issues involved in specific cases. In general, the tenet of legal realism is the call for flexible application of laws in a manner that conforms to the constant change in societal values and the recognition of judicial activism.

d) The Marxist Legal Thinking

The Marxian view of law is considerably associated with itspolitico-economic paradigm. This conception of law is substantially different from other schools of thought in that it questions the very origin and purpose of law and argued for its elimination.

According to the Marxists, law came into existence as a result of the emergence of a class society based on private property. The formation of a class society is such that those who have appropriated private property constituted one class and those with no private property constituted the other class (the lower class), and law is an instrument of maintaining class differences and an oppressive tool by the economically dominant against the have-nots.

The political and economic object of the Marxist thought is the transformation through socialist state of the society to communist society where classes do not exist (and where private ownership of means of production dies out). If the society is transformed to communist mode, there would be no more need of laws and state. While the Marxists regarded law, just like positivists and realists, as state-made, they contended that such law would have effect only until communism is realized and would wither away thereafter along with the state.

The lines of legal thought we have just explored above reflect the existence of diversified notions regarding the definition of law. The variations in ascribing a meaning to law are not matters of mere semantics; they are critical and rather grounded on deep philosophical foundations. Nevertheless, the various schools of jurisprudential thought have had drawbacks that has subjected than to critics. The major problem with these schools of thought generally is that no comprehensive approach to define law is made. None of the perspectives would attempt to look into law in its entirety; they are rather concerned with specific aspects of law. Naturalists, for instance, limit themselves to the consideration of content of the law. Positivists, on the other hand, prefer to treat law from formal point of view that law assumes validity if it comes about by a legitimate process.

Another problem coming up with an all convincing definition of law pertains to its very nature. Law is a dynamic social norm. The society as a whole (whether ideologically, philosophically, culturally, socially, economically, or politically) keeps changing and law, as a norm of social regulation, accordingly would be subjected to a constant state of flux. The law cannot refuse to change while the matters it governs change. If it does refuse, it would no more be legitimate and would be thrown to disuse.

Changing societal circumstances demand the continued modification of law in terms of its content, form, scope and nature. Therefore, providing a consensual definition of law in terms of these latter factors is virtually impossible because these yardsticks would considerably differ from time to time, and it is partly no surprise that the various jurists have not concurred on what law is.

All the above failures do not mean, however, that law is without any generally accepted characteristics. The problems reveal the apparent difficulty in telling what law directly is, but law can be regarded as possessing certain universally recognized features. These features or attributes are very important in that they provide indirect descriptions of law. Below are the base characteristics of law along with their brief explanation.

1.2. The Features of Law

i) Generality

The most obvious feature of law is its generality. Law is a general statement regarding a possible human conduct. Any valid legal norm is applicable to all the subjects in the author’s territory. Law is not meant to shape the behavior of a certain category of persons and leave others; every one is subject to the application of any duty existed law, saving extremely exceptional circumstances (such as exemption from legal liability to a certain degree because of immunity provisions). For instance, laws passed by the Ethiopian legislator (the House of Peoples Representatives) demands all Ethiopians to comply with it, irrespective of race, language, religion, social status, sex and political outlook. The generality of laws also implies that a law is applicable to all similar cases, and it does not leave others and govern some.

ii) Normativity

One of the distinctive features of law is that it is a normative statement. This accords with the philosophical discourse on the dichotomy between the “is” and the “ought”. The characterization of law as a normative statement refers to the “ought” aspect of the discourse, the statement of what should be rather than what is. Law is not a factual statement (description is not in the nature of law); it is rather a prescriptive tool which purports to shape human behavior in the future.

iii) Establishment in Permanence

The coming into force of law presupposes, at least presumably, its indefinite existence in the future. It is unusual to fix a time-limit for the application of law. A frequently changing law creates social instability and more prone to losing legitimacy. This does not mean, however, that laws live forever. They have to be reasonably flexible to accommodate changing social realities. Change in societal circumstances is normally a gradual process and the corollary gradual remolding of laws cannot be regarded as resulting in an unstable phenomenon. Laws violate the virtue of permanence and create instability when they change quickly and unnecessarily without having regard to the status of the situation it is meant to govern.

Law might exist exceptionally for temporary application. The possibility of the declaration of sate of emergency explains such a circumstance. The law declaring the emergency situation remains in force until the matter that called for the declaration of emergency secedes. But overall, law is to be established in permanence and a time frame would be fixed only in exceptional circumstances.

iv) Intimacy with Human Behavior and State

Law is a social norm and its ultimate concern is regulation of the social behavior of human beings. The claim of law would naturally be made by men with respect to or as against each other. Law cannot be employed to govern relationships of other animate or inanimate things as among themselves; it is not concerned with a claim between humans and other things either.

The intimacy of the law and the state is far from question. In reality, one cannot conceive of one without the other (they are two inseparable aspects of the same system). One cannot have validity or legitimacy without the other. Indeed, the state is itself brought into life by law and cannot continue in that status without using law. The law on the other hand would have life and produce the desired effects only by the backing of centrally organized state machinery.

v) Strongly Institutionalized

We have said above that law is backed by an established system of a state. The state is known for its strong institutionalization and this provides the law with institutionalized system of enforcement. The state is constituted by centrally established institutions of legislature, executive and judiciary entrusted with the tasks of law making, law enforcement and interpretation of laws respectively. The combined operation of these organs sanctions the law by a strong force.

1.3. Law as Distinguished from Other Social Norms

Law is a social norm, but not the only one. There are also other values of normative significance in a society. The features we have seen in the forgoing sub-topic generally characterize law as a social norm. Some of these features are exclusively concerned with law while some are shared by other social norms. Now we came to the questions: what are these other social norms? And what makes law different from them?

This “other social norms” category is filled perhaps by ethics, morality,culture, religion, and the like. These ethical, moral, or religious values are normative in the sense that they, just like law, prescribe what should be and what should not be and accordingly shape the social behavior of man. To this extent, law possesses an identical attribute to that of ethics, morality or religion. Nevertheless, there are conspicuous differences between law and other social norms, as provided below.

One important issue that differentiates law from the other social norms is mechanism of their enforcement. Law is backed by a strong sanction of the state and would be institutionally enforced. Ethical/moral/religious norms on the other hand lack such external and effective enforcement mechanism. Their observance is more often than not demanded in point of conscience than through external organ. Individuals can breach these norms with impunity and the most they would suffer is moral guilt.

Second, scope of application is a distinguishing mark between law and the “other social norm” category. Law enjoys uniform and nationwide application. But the other social norms are peculiar to particular groups and therefore suffer from extremely localized (restricted) application. There could be a number of religions, cultures or customary practices in a state; none of them would have norms that apply beyond their own peculiarities.

Law can still be identified vis-à-vis other normative values of the society on the basis of the mechanism by which it is created and changed. Law originates from a centrally established and clearly defined institutional framework. The existence of clear institutionalized system would make it easy to bring law into effect and to amend it. Non-legal norms, on the other hand, do not normally have an easily traceable institutional origin for they are not made in an organized way. They come into existence through a practice by a concerned group over a relatively longer time in a scattered and uncentralized manner. The development of these non-legal norms out of unclear and gradual process makes it equally difficult to amend them. They are not amenable to easy and fast amendment for they are rigidly established.

A further important factor that can be regarded as a virtue of law overnon-legal norms is the exhaustiveness and clarity embedded in law. Law would be exhaustively proclaimed (mostly written) and sufficiently clear. The conduct it purports to command or prohibit and the consequences of behaving otherwise would be fixed in advance. Normative rules of ethics, morality, or religion are, on the other hand, barely exhaustive and known for their manifest lack of clarity. And mostly non-legal norms do not determine consequences of breach in advance. Since they are mostly unwritten, they are surrounded by a cloud of vagueness and obscurity. 1.4. Functions of Law

Dear students, have you ever doubted the importance of law in a society? Do you think that the secure condition in which you accomplish your tasks would be there had law not been there and prevailed? I hope you say not! Yes, laws perform various functions in a society. They are the powerful weapons to attain diversified societal needs. Laws are not ends in themselves, but rather they are the most effective and reliable means at the disposal of the society.

The simple and common sense response you might make is perhaps that law is an instrumentality for maintaining order and security. Imagine what would happened if there were no law to curtail the conduct of gang of robbers breaking into your abode and taking away the property you have gained over time through exerting your energy and investing your money. Think also of a reckless conduct that sets fire to a building in which you run your business affairs which results in a looting of essential documents. I hope you openly unwelcome such a situation. In the absence of law, persons might excessively and arbitrarily behave and you would also be discouraged to undertake proper business activities for fear of the risk of losing it some day. So, laws, especially criminal laws, would become indispensable tools to stop unwelcoming conducts and to create peace and stability for proper life of the society.

It is important to note that haw delves into almost every social interaction. It regulates the way a particular relationship is to be created, maintained and broken. Law is not limited to mere maintenance of peace and order; it also steps in to govern detailed individual interactions. Laws of family for instance are concerned with the regulation of the institution of marriage and matrimonial affairs. Contract and property laws administer contractual bonds and property relationships of individuals respectively. Business laws, on the other hand, intend to shape behavior in commercial transactions and ensure the interaction is conducted in healthy and effective manner.

Law protects citizens from arbitrary and excessive governmental actions. That body of law which sets out structure of the state and the relationship the government of that state would have with citizens is referred to as constitutional law. The powers and functions of the government are usually defined by a constitution, and this law restrains undue governmental encroachment in the affairs of subjects. Human rights provisions are typical examples in this regard – that they call upon the government to either act or refrain from acting in the protection and enforcement of human rights. Law of constitution can function in such a way that the various organs constituting the government discharge their tasks in an atmosphere of harmony and transparency. The principle of checks and balances incorporated into most republican constitutions reveals the possibility of review of actions or decisions of the legislative, executive or judicial bodies by one another.

Laws are also instrumental in fighting harmful traditional practices (HTPS). Early marriage has been the widespread practice in many parts of Ethiopia. Marriage is a big affair upon which family, the fundamental unit of the society, is found. Yet, such purpose is served only if spouses are psychologically and biologically developed enough. Ignorant of such fact, most Ethiopian parents force their teenage children (especially girls) to marry while they are in fragile mental and physical conditions, exposing them to various economic, social and biological problems. The same is true of Female Genital Mutilation (FGM). The law is a typical tool in reducing, and ultimately eradicating, these harmful traditional practices.

Law also pays a prominent role in improving the life of the society through the encouragement of innovation and creativity. Law encourages individuals to engage in innovative tasks by granting them rights to exclusive enjoymentof their inventions via issuing patents, copyrights, trademarks and the like. These mechanisms bestow inventors and authors of new ideas with economic and moral benefits, thereby helping society to make use if better means of life.

1.5. Classifications of Laws and Nature of Business Law

The body of law is huge. To study it one must break it down by means of classification. Classification of laws is the systematization of the law based on the subject matter for the purpose of finding the relevant law more easily and determining whether different legal rules were required depending on their area of application.

No single classification system can cover the large of mass of legal information. Consequently, those systems that have been devised tend to overlap. Moreover, they are, of necessity, arbitrary in some respects. A discussion of the best known classifications of law follows.

Public versus Private Law

Public law addresses the relationship between persons and their government, and between various governments. They are public in the sense that the interest of the public at large is at stake as represented by the government. Criminal law and constitutional law, for example, are generally classified as public law, because they deal with persons and their relationships to government. Criminal acts, though they may involve only one victim, are seen as offenses against the society as a whole and prohibited by governments for the purposes of protecting the public. Constitutional law is a public law because it involves question of whether the government (federal, state or local in a federal setting, or the central government in a unitary system) has the power to act in a particular fashion. Often the issue is whether a law or a decision of a governmental authority, duly passed and made, exceeds the limits set on the government.

Private law governs direct dealings between persons. When persons deal oraffect other persons, such as in a contractual relationship, the law governing these relationships is classified as private law. Private law may ultimately advance societal interests as a whole, but its immediate concern is with individual transactions that affect the legal positions of the transacting persons. Agency, law of commercial paper, trade and business organizations, sales, torts, insurance and any other area of business law is essentially classified as private law

Substantive and Procedural Law

Substantive law includes all laws that define, describe, regulate and create legal rights and obligations. This body of law establishes acts and situations producing effect at law. For instance, a rule stating that promises are enforced only when each party has received something of value from the other party is part of substantive law. So, too, is a rule stating that a person who has injured another through negligence must pay damages. Most of the bodies of law we have highlighted above, both public and private, are substantive laws. Substantive law tells us what our rights are.

Procedural law sets out the methods of enforcing the rights established by substantive law. Questions about how a lawsuit should begin, what documents need to be filed, which court will hear the suit, which witnesses can be called, how the judicial proceedings is conducted, and so on are all questions of procedural law. In brief procedural law tells us how to exercise substantive heights. Civil procedure, criminal procedure and evidence are typical examples.

Dear students, you have to bear in mind that the importance of the distinction between substantive and procedural law is more than academic. This is so because the result of a case may well depend upon the determination that the rule is substantive rather than procedural.

Civil versus Criminal Law

Civil law is concerned with the duties that exist between persons or betweencitizens and their government (the latter as a ordinary legal person), excluding the duty not to commit crimes. Contract law, for example, is part of civil law. The whole body of tort law, which has to do with the infringement, in the absence of contract, by the person of the legally recognized rights of another is an area of civil law. Criminal law, in contrast to civil law, is concerned with wrongs committed against the public as a whole. Criminal law is always public where as civil law is sometimes public and sometimes private. In a criminal case, the government seeks to impose a penalty on an allegedly guilty person.

I hope you have understood the nature and purpose of the above classification attempts. I would like you to have thorough look to the classification once again and identify the position of our subject matter, business law. You see that the various areas of law that greatly touch with business (such as contracts, partnerships, commercial instruments, traders and business organizations, agency, sales and insurance) constitute the private legal regime rather than public, substantive rather than procedural, and civil rather than criminal.

1. Discuss why a consensual definition of law has been difficult and why the various schools of legal thought diverge on the conception of law.