“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 professional careers. 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.
INTRODUCTION TO LAW AND THE LEGAL ENVIRONMENT OF BUSINESS
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 of jurisprudence. 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 in time.
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 its politico-economic paradigm. This conception of law is substantially different from other schools of thought in that it questions the very origin and purpose of law and argued for its elimination.
According to the Marxists, law came into existence as a result of the emergence of a class society based on private property. The formation of a class society is such that those who have appropriated private property constituted one class and those with no private property constituted the other class (the lower class), and law is an instrument of maintaining class differences and an oppressive tool by the economically dominant against the have-nots.
The political and economic object of the Marxist thought is the transformation through socialist state of the society to communist society where classes do not exist (and where private ownership of means of production dies out). If the society is transformed to communist mode, 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
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.
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 over non-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 enjoyment of 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 or affect 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 between citizens 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.
2. Identify the basic features of law first, and then outline features that distinguish it from non-legal norms.
3. What specific functions does business law perform in the society?
4. What is the difference between the positivist and the Marxist legal ideology?
5. Where do you find business law in the broader classification of law? Exhaustively discuss all the appropriate places it may occupy.
6. Discuss the virtues of out of court settlement of disputes over court adjudication.
LAW OF PRESONALITY
This section introduces the basic concept in law – the law of persons. Here is where all legal claims start and produce the intended legal effects. A student who successfully completes the study of this part should be able to: - distinguish the legal meaning of person from its literal meaning; - explain the purpose of granting an individual or a fictitious being with personality; - discuss the acquisition and termination of personality; - identify the attributes of personality;
- analyze capacity and incapacity of physical persons.
2.1. The Concept of Personality and its Effect
The term person in law is different from its conventional meaning. Personality in law refers to the authority accorded to a being (individual or organization) by law so that the latter would be able to enter into various transactions having effect at law. In other words, humans and fictitious entities cannot perform juridical acts without being recognized as persons before the law. In order to acquire rights and bear duties that are enforceable by the machinery of a legal system, one needs to possess personality first. It is only beings that are persons in the eyes of the law who can conduct legally binding transactions. The term person in its ordinary sense refers to human beings only and not for any legal purposes other than mere linguistic purpose. But for the purposes of the law, not only individual human beings assume personality upon fulfillment of certain prescribed conditions, but also artificial creations of the law are granted personality.
Personality is a fundamental concept in law because no dealings of legal significance would produce effects without it. It answers the basic question who the subjects of the law are. Only subjects of the law can enjoy the rights that the law confers upon them and only they can discharge the duties it imposes upon them. Thus, the normal effect of personality is the ability to be a party to legal transactions and perform various juridical acts (acts having effect at law) having effect of law.
Personality is granted to two categories of beings and accordingly is of types. One is physical or natural personality that is possessed by human beings. In the past, not all human beings were subjects of the law. For instance, slaves were regarded as mere chattels of their masters and did not have any rights or duties of their own. They were objects of legal transactions rather than subjects of the law. So, during those times, personality was conferred upon non-slaves. But these days, with the abolition of slavery and its strict prohibition, virtually all human beings possess personality and perform juridical acts. The other type of personality is that accorded to beings that do not have material existence. Associations, companies, organizations, partnerships, corporations or even the state are only perceived by the law to exist. These fictitious entities are exclusive innovations of the law and accordingly given personality because of the necessities of modern complex legal transactions.
2. 2. Beginning and Termination of Artificial Personality
There could be numerous mechanisms through which moral persons will begin to have legal life. Of these mechanisms, the famous ones are issuance of a specific legislation, effecting registration and requirements of publicity. For instance, public enterprises will start to have personality upon the enactment of establishment regulations with no other conditions attached to it. On the other hand, private business organizations need to be registered with a competent public authority in order to acquire legal personality. They should also comply with publicity requirements. So, acquisition of personality by business organizations is realized by meeting the requirements of both registration and publicity, and only as a consequence of such they can validly undertake acts of civil life.
The same way personality begins will it mostly end. That is to say, just like artificial personality commences through issuance of statutes or effecting registration and publicity, it ends through the enactment of dissolving law or the striking out of name of the entity from the public registry. To terminate the legal personality of a public enterprise, regulations would be issued and these would serve the purpose of ending the legal life of the enterprise. Ordinary business organizations would cease to have legal life when they are canceled from the registry and/or through the revocation of the license issued to them as evidence of personality. Artificial personality may also end as a matter of fact where the object for which the entity is established becomes impossible to achieve or where that organization is dissolved because of bankruptcy. In all the above cases, the fictitious beings would die out and they can no more be parties to transactions having effect at law. Any act done by these beings after their personality has terminated is deemed never to have happened for all legal purposes.
2.3. Attributes of Legal Personality
Being recognized as a person by the law makes the person possess certain attributes. The most noticeable of these attributes are given below.
i) Having a name: - It may be very simple to coin a name and call a certain being by that. But names do really affect the legal position of a person because they are mechanisms of identifying the civil identity of a specific person in the society and of legally conferring/imposing upon it powers and disabilities. Furthermore, since use of a name can modify the legal status of a person, the law provides for protective mechanisms against abuse and usurpation of the name by others. Generally, it is through name as a manifestation of civil identity that a person in the eyes of the law can become a party to a legal transaction, and thus it is a fundamental attribute of personality.
ii) To sue and be sued (in one's name):- To sue is to bring a legal action against another, and, conversely, to be sued is to face a legal action brought against oneself by another. In both cases, one attends a law court where rights and duties are often modified through judgments. Because they involve alteration of one's legal position and determination of liability, suits should be brought by and against the concerned person in its own name. For instance, if three people (A, B and C) form a company and the latter has satisfied the requirements of law for the acquisition of personality, it brings legal actions against others in the name of the company and not in the name of the owners. Similarly, others institute a legal action against the company in the name of the company and not in the name of A, B, or C (the owners). Thus, a distinction is drawn between the liability of the company and the individual persons forming it.
iii) Entering into contractual relations: - Since a legal person is an entity that can be a party to legal transactions, it can enter into various contracts in its own name. A company can conclude a contract with another company or with a human being, and the rights acquired as well as the liabilities incurred because of the contract belong to the company itself, and not to the owners. It is this legal person itself that is either the creditor or the debtor of a third party contractant.
iv) Ownership and administration of property: - A legal person can exercise all property rights to the exclusion of others and enjoys ownership and administration right over all chattels belonging to it. Property belonging to a legal person is distinct from the property of its owners, i.e. they belong to essentially different patrimonies.
v) Obligation to pay taxes: - A legal person is liable to pay taxes on taxable benefits and gains. Since it is authorized to own and administer property and since it can carry on business, a legal person pays taxes on its property and income in the same way human beings do.
While it is generally true that fictitious beings possess all the above features on their own behalf, there are also some other points we need to take note of here. We know that moral or juridical persons do not have a physical existence, and so they are without the natural faculties of thinking, deciding or moving. That means they necessarily undertake through human agents when they carry out the above affairs. They use human mind and decision when they coin the name by which they are identified; they bring suits and defend same being represented by human beings; it is again human agents that exercise property ownership and administration, and sign a contract on the behalf of the legal person. But all such acts performed by the human agent through representation are deemed to have been directly undertaken by the legal person, and the rights and duties arising therefrom would bind the legal person and not the human agent. Individuals only facilitate transactions and they then step-out of the legal consequences.
The conferring of personality upon moral persons and accordingly authorizing them to own property and conduct business in their own name give rise to the concept of limited liability. The fact that the property and patrimony of the legal person is distinct from that of its owners means that the legal person is liable to the extent of its property only. The liability does not extend to the property/patrimony of the owners.
2.4. Commencement of Physical Personality
Dear students, the personality of natural persons begins through a couple of ways. There is a rule which is generally regarded as the starting point of personality, and there is also an exception to such rule where personality commences. Discussion follows below of the rule first and then the exception.
2.4.1. The Rule
Most legal systems accept birth as a time when personality of a human being begins. Similarly, Art.1 of the Ethiopian Civil Code provides “the human person is the subject of rights from its birth…”. Birth refers to the complete extrusion of the baby from its mother's womb either in a natural way or by a medical operation. In this sense, the beginnings of natural and legal existence are simultaneous. Birth alone is a sufficient condition to confer personality under the Ethiopian law, and no other requirements are attached to it.
2.4.2. The Exception
Because personality begins at birth as a matter of principle, an unborn body is not a person in the eyes of the law and can have no rights. But this general rule is excepted in that personality may be granted to a merely conceived baby without waiting for its birth for some purposes. As an exception, personality of a fetus should be restrictively construed and it is applicable only in certain circumstances. The circumstance generally revolves around the interest of the unborn child. The law has invented this fiction only for the purpose of enabling the child (if it is born) to take a benefit in all matters affecting its interest. This conception is based on the justification that a child who has already lost its father while being in its mother's womb should not be subjected to further pain of losing a benefit which it would have secured had it been born before its father's death. So, when there is an interest of the baby at stake, the unborn baby in the womb should be regarded as already born and should be allowed to take advantage of the interest.
The granting of personality to a fetus is subject to compliance with three cumulative requirements. According to Art 2 of the Ethiopian Civil Code, “a child merely conceived is considered as though born where its interest so requires provided it is born alive and viable”. Thus, the three conditions are: the interest of the child must justify the grant of personality, the child must be born alive, and it must be viable. These conditions are cumulative in the sense that the missing of one suffices to deny the fetus personality.
In most cases, the interest of the unborn baby comes into the fore where a father dies before the birth of the child leaving behind property. If a baby has to wait until birth to acquire personality, i.e. if Art 1 of the Civil Code is strictly applied, it will definitely lose the succession to its father's property because succession constitutes a juristic act and being a beneficiary when it opens necessarily requires personality. Opening of succession is legally made at the death of the father and the property would devolve upon those having the capacity and the right to succeed at such time.
It is to be noted here that the merely conceived baby will be given personality (before birth) only for the purpose of the particular interest that called for the personality. That means an unborn child would be recognized as person only to benefit from the interest at hand, and it has to wait until birth to acquire personality for all other juridical acts. Acquisition of personality for a particular interest does not entitle one to exercise it across the board, and in effect personality at conception is significantly reduced.
Besides the interest of the child, there remain two conditions: alive birth and viability. In order to be considered as a person, the baby must be born alive so much so that, for instance, personality will never be granted if the fetus is aborted. Viability refers to the ability to live or the potential of surviving. This is to exclude from the ambit of personality impotent newly born babies or those incapable of surviving because of some congenital factors.
The law takes certain presumptions to settle questions of what baby is viable and what is not. The law irrebutably presumes that a child that lives for 48 hours after its birth is viable, so that no contrary evidence can be admitted to disprove this presumption. The law also provides for another presumption in the negative that a child that dies before 48 hours after its birth is deemed to be not viable. But this presumption is rebuttable in that it can be shown to the contrary by proving the child was viable. But we cannot challenge the non-viability of the child by using deficiency in constitution as evidence. That is to say, if a child dies before 48 hours following its birth due to a disease he caught in its mother's womb or due to other congenital biological deficiencies, it will be conclusively deemed not viable. However, external factors that may have caused the death of the child before 48 hours can be used to disprove the presumption of non-viability. If, for instance, the baby dies on the 43rd hour after its birth because of mishandling by nurses or by hunger or due to a car accident that occurred while it was being taken home from hospital, all such can be employed to challenge the above presumption by proving that the baby would not have died had it not been for the extraneous factors..
2.5. Capacity and Incapacity of Physical Persons
Capacity is a natural consequence of being recognized as a person before the law and it refers to the authority to enjoy and exercise rights and duties by oneself. However, even if personality is a necessary condition for capacity, it is not a sufficient one to enable one to personally carry out juridical acts and certain conditions may incapacitate an individual still possessing personality. Capacity or incapacity is usually thought of regarding two aspects: holding rights and duties, and exercising rights and duties.
The principle governing the holding of rights and duties by physical person is that as soon as personality begins all rights and duties are held by an individual. This means that as far as the holding or enjoyment of rights is concerned, capacity is not only the rule but an absolute rule. It can be inferred from Art. 1 of the Civil Code that entitlement to rights and duties under the civil law belongs to all individuals by the fact of birth without any other condition attached to such holding.
Capacity is the rule even in the case of exercising rights and duties a physical person holds. Since holding rights and duties is meaningless without the authority to exercise same, the full exercise of rights and duties in principle coincides with their holding. In the same way that all physical persons enjoy rights and duties, they are capable of exercising the same by themselves. But in certain circumstances it deems compelling, the law may explicitly declare that person is considered incapable to exercise rights and duties. Since capacity is presumed in the exercise of rights and duties (incapacity is very exceptional), the burden of proving the existence of incapacity falls on the party who claims the incapacity. Thus, in all acts of civil life physical persons may be assumed that they are dealing with equals who not only hold but also exercise the same rights and duties as theirs.
Dear students, you learned above that a physical person may be exceptionally enjoined from personally exercising rights and duties because of existence of certain conditions expressly recognized by the law. But even in such case, the prohibition is not total, i.e. the person is not prohibited from exercising rights and duties altogether but only his personal exercise is disallowed. He or she can still exercise rights and duties through another person by way of representation. So, the effect of incapacity in exercising rights and duties is that the exercise would be entrusted to a third person. Let’s now see in brief the legally prescribed conditions of incapacity and their corresponding representation institutions. Some of the conditions are protective of the interests of the incapable person (e.g. minority, judicial interdiction) while others are either preventive or punitive of certain conduct (e.g. foreign citizenship, legal interdiction).
a) Minority: - Minority in civil law is an incapacitating condition that occurs because of age. A person below the age of 18 years is called a minor and is incapable of exercising rights and duties by him/herself. The law intends that these persons have immature intellectual faculty and lack the proper degree of appreciation when they transact acts of civil life. The law interferes to protect minors from exploitation by others. Accordingly, any civil act undertaken by the minor without authority is subject to invalidation. A minor may, however, validly perform acts of daily life, i.e. simple and small matters that are quite frequently done and that do not significantly affect the legal position of the minor.
There are two institutions of representation recognized by the law to exercise rights and duties on the behalf of the minor. One is guardianship, which is entrusted with the task of running the personality affairs of the minor. Personality interests include food, clothing, shelter, and schooling, and generally refer to the proper physical and psychological well being and growth of the minor. The guardian is responsible for such interests of the child. The other representative institution is the office of tutorship. Tutor is answerable for the protection and management of the minor's economic (pecuniary) interests such as securing income, investing same, running business, administering property and the like.
The incapacity arising as a result of minority may terminate through a couple of ways. A minor obviously assumes capacity to exercise rights and duties him/herself when he/she attains the age of majority (18 years). The incapacity of a minor may also come to an end through emancipation even if the person is still below the age of eighteen. A minor may conclude marriage in exceptional circumstances approved by the appropriate public body, and we call this situation emancipation. This phenomenon suffices to end the incapacity of the minor and releases him/her from the authorities of the guardian and the tutor.
b) Judicial Interdiction: - This is a court judgment that declares a person as incapable because of mental conditions. The law steps in to protect the interests of persons with deteriorated mental functioning as a consequence of insanity, infirmity, senility and the like. Insane persons are believed to be unable to understand the nature and consequences of their actions because they have got a mental disease. Infirm persons are those with serious physical deformities so that such deformities will have the ultimate substantial reduction in mental functioning. For example, if a person is simultaneously deaf-mute and blind, he/she is deemed to be infirm. Senility is deterioration in mental faculty because of old age. The court can declare the interdiction of the above persons with mental deficiencies.
Judicially interdicted persons will lose the authority to exercise rights and duties as of the date of their interdiction. But they, just like minors, exercise rights and duties they hold through guardians if the interest pertains to the personality of the incapable and through tutors where the interest is a proprietary one.
Note that the offices of guardian and tutor have certain general features in cases of both minority and judicial interdiction.
1. The offices are compulsory – it is a civil duty to become a tutor or a guardian and no consent is needed. 2. The offices are in principle non-remunerative. A guardian or a tutor gives the service for free. 3. The tutor/guardian must be a capable person. It is clear that an incapable person cannot exercise representing others rights and duties that he/she cannot personally exercise. 4. The essence of the distinction between the offices of guardianship and tutorship is the type of activity undertaken and it does not mean that two different persons should hold the offices. Both functions can be assumed by a single person. 5. The offices are strictly personal in the sense that they cannot be delegated to the exercise of third party or they cannot be transferred to next of kin through inheritance.
c) Legal interdiction: - This is an incapacity imposed by the law. A person will be legally interdicted as a result of the pronouncement of a legally prescribed punishment for the violation of criminal law. The prescribed sentence will deny the person the capacity to carryout economic affairs. A legally interdicted person retains capacity over his personality interests and thus no guardian is necessary. A tutor may represent the legally interdicted person to exercise the latter’s pecuniary rights/duties. The assumption of the office of tutorship is, unlike that of minority or judicial interdiction, voluntary. The evident reason is that a person who lost his privilege because of commission of a crime should not be favored by compelling others to assume the role of tutorship on his behalf.
d) Foreign Nationality: - This is a special incapacity because a person is prevented from exercising specified categories of rights. For instance, the law states that a foreigner cannot take part in governmental administrations. Likewise, a foreigner cannot (whether personally or through an agent) own an immovable in Ethiopia, nor can he enter certain investment fields reserved to Ethiopians.
6. Termination of Physical Personality
Article 1 of the Ethiopian Civil Code also provides for the way personality of individuals ends. It states that human person is the subject of rights from birth to death, meaning personality ends at death. In this case too, natural death and legal death of a person are co-existent.
Declaration of absence can, through interpretation, also result in termination of physical personality. The law says that if a person's whereabouts are not known for a certain period defined by the law, a judicial declaration of absence having the effect of death for all legal purposes may be made. Among the effects of death are found the opening of succession of the person and the remarriage of her/his spouse. But most importantly, absence with an effect of death will end personality of the absence.
Review and Self-check Questions
1. Why is the knowledge of law of personality so important to a businessman or a manger? _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________.
2. What are the differentiating points between artificial persons and physical persons? ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________.
3. What is the effect of a civil act performed by a judicially interdicted person? _________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ ________________________________________________________________________________________________________________________.
4. Does the establishment of a partnership by, for instance, identifying the partners, paying the capital and concluding the memorandum of association mark the beginning of personality for that partnership? Why or why not? _______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________.
5. Work out the following case by making correct reasoning: A and B are spouses. They have a merely conceived baby who is expected to be born after four months. On the last day of the sixth month of pregnancy of his wife, Ato A, the husband, died due to car accident leaving behind a good deal of property. The mother gave birth to a female baby who died only after 50 hours.
(a) When does the baby begin to have personality and for what purpose? ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________.
(b) Would there be a difference regarding personality of the baby if the father 10 hours after the birth of his child and the baby dies 20 hours later because of deficiency in development? Explain. _________________________________________________________________________________________________________________________________________________________________________________________________________