BUSINESS LAW

General Introduction of the Course material

If you are hoping to become a manager, at a certain point in your career, this text material will
help you to acquire knowledge and skills that pertaining to business law which an effective
manager should be vested with. This teaching material will give you more knowledge and skills
in regulating business and financial institutions which help you in your managerial
responsibility. It also integrated with the global thinking of business transactions as they are the
main juridical acts. This text material divides in to seven chapters which give emphasis on the
basic ways of running business through the financial institutions and their instruments. When
you read this teaching material always don`t forget to relate with practical business transactions.

Chapter one deals with introduction to law in general that enhances basic understanding and
gives readers clue about the proceeding chapters. It tries to show you the problem of defining
law and provides a solution to such effect. Generally, this chapter would give you general
background about the basic principle of law. Chapter two focuses on the principles of contracts
in general and its importance in performing juridical act. It also deals with the law of contracts
in general that shows basic principles and formalities required for a valid contract to conclude.
Chapter-three deals with business and business organizations of Ethiopia and the requirements to
form them. Chapter four addresses the formation of sales contract and duties of the parties.
Chapter five deals with the law of agency focus on the principles, form, scope of agency contract
and duties of the agent and the principal. Chapter six focuses on law of security devices which
explains the forms of guarantee instruments and their importance in securing credit operations.
Finally, chapter seven deals with law of insurance and its principles to form insurance contract.
Chapter One: Introduction to Law

1.1: Defining the Concept Law

In everyday life or conversation people use or define the concept law in many different ways,
however, it is very difficult or not simple to define law. As a result, different legal scholars
define law differently depending on the objectives that they have.

Some define law according to its characteristics. A characteristic is the existing law or positive
law. Positive or analytical school of thought focused on the existing law and tried to look what
law is.

Some of them define law according to its content. They say just law is a law but unjust law is not
a law. They relate to rationalism, that is, law is not made by man but found through reasoning,
wisdom. Such understanding not concerned with the existing law. According to them law is what
ought to be. This depends on natural law.

Some others define law according to its actual operation or function. They focus on how the law
actually serves the society not on how and who made the law.

Accordingly, the following are some of the definitions of law given by different scholars.

 Law has been defined as rules and regulations established by government and applied to
people in order for civilization to exist (American realism)
 Law is a body of rules for human conduct set and enforced by a sovereign political
authority (Thomas Hobbes and John Austin)
 Law is a body of rules for human conduct with in a community which by common
consent of this community shall be enforced by external power (Apothem)
 Law is the command of the sovereigns to be backed by sanction (John Austin)
 Law is an obligatory social rule by the public authority permanently and sanctioned by
force (planiol)
 Law is a means of dominating and exploiting the society (Marxian)
 Law is defined as a body of principles recognized and applied by the state (Salmon A.).
These definitions of law are not an end by themselves; however, they are workable relating to the
views or purposes of scholars. From these all definitions and views of law provided by different
scholars, one can understand that the concept of law is something which cannot be defined, that
is, there is no conventional definition of law. The reasons are, there are different social
interactions, interests, political views, ideology or out looks, religions, cultures, languages,
customary practices, or traditions, etc., that influence not to have conventional definition of law
rather as indicated above there may be workable definitions of law.

1.2: Understanding Theories of Law

In defining what the concept of law is to mean, we need to refer the main theories of law. The
purpose of studying theories of law is to develop wider scope in understanding law. In this
regard, you will study three schools of thought such as natural law theory, positive law theory
and functional theory of law.

1.2.1: Natural Law Theory

Natural law theory is the oldest theory of law that dated back to the ancient Greek philosophers.
In the past, there was no distinction among law, religion and moral because law was defined in
relation to the Devine will. According to the classical natural law theory, law is discovered by
reason, human beings to govern and control their relations. They believed in that natural law is
revealed through “reason” because it is higher law than law made by man , that is, law made by
man must not be obeyed if contradicts with natural law. Natural law theory is classified in to
three periods that are classical natural school, medieval natural school and Neo-natural school,
though all of them have common understanding towards law.

St. Thomas Aquinas (1225-1274) leading proponent of this theory in the medieval period stated
that man made law may be wrong, however, God’s law cannot be wrong. Man made law shall
comply with natural law which is discovered by human rationality meaning man made law must
be governed by ideals of morality and justness discovered by human rationality. This reveals that
natural law had religious and metaphysical basis in the medieval period.
In spite of the criticisms made against natural law theory for trying to apply justness, morality
and fairness relating to religion and metaphysical out looks, its contribution still upholds. The
principle of rule of law, due process of law, equality before the law, the concept of fundamental
rights and international law have their roots in natural law theory. In natural law there is truth
about right law that mankind could discover by the use of his rationality has universal character.
It summarized that, since morality and justice are there in nature man can’t create or change the
natural law but the position of man must be to discover and accept rationally.

1.2.2: Imperative/Positive Law Theory:

It is sometimes known as positive or analytical law theory. The Greek philosopher Aristotle
(384-322 BC) was the philosopher who made a distinction between natural law and positive law.
He stated that positive law is written or declared law by a body or individual who has the power
to enact laws. Positivists believe that there is no higher law than a nation’s positive law that
enacted by a sovereigns body which has the power to legislate and enforce the law is supreme
and just if it is made by a democratic government, but unjust if it made by a dictator(s).

John Austin (1790-1859), the prominent positivist, defined law as the command of the sovereign
backed by sanction. He believed that morality and justness have no role in defining what law
actually is. He strengthened his argument saying that what the existence law is one thing but its
merits or demerits are another. According to john Austin the sovereign is the government which
is competent to make laws because law is separate from the concept of morality and justness.
This theory is criticized because it excludes morality and justness from the preview of law. They
said when there is a command there is a superior and inferior relationship as a result if the
inferior violated or evaded the command of the superior, the inferior is going to be punished.
Therefore, they concluded that because of sanction the law is respected and functioned.

However, criticism is forwarded against positivists saying that law is not always a command
because human beings shall have some rights; for instance, everyone has the right to elect and to
be elected. This is not a command like don’t commit theft but it is a right. Another example,
everyone has the right to marry or not to be married, it is not command but a right which is not
punishable.
1.2.3: Sociological/Functional Law Theory:

The prominent and influential American Jurist, Roscoe pound (1870-1964) saw law as an
attempt to balance social interests with individual interests. To him law is the product of the
society, and its purpose or function shall be to balance conflicting interests and considered law as
social engineering.

Justice Holmes (1841-1935) also defined law as a means to protect and promote the collective
group interests as compared with the individual interest. Justice Holmes emphasized that while
determining the law and legal rules by which men should be governed, lawyers and judges must
take into account the needs of the time and the needs and satisfaction of societies.

The general program of studying law in the view of the functionalist is that seek to enable to
complete law making whether legislative, or judicial or administrative or the development,
interpretation, and application of legal precept to take more complete and intelligent account of
the social facts up on which law must proceed and to which it is applied. Its basic concern is with
the effectiveness of law, that is, aim to focus on the gap between the law- in- theory and the law-
in- action. They concluded that legislators and judges shall understand the factual effect of law
and legal institutions in the social life of the society and address social problems when enforced.

1.3: Basic Natures of Law

The nature of law is based on the definition of law given which collectively can be considered
law as a system of mandatory norms made by a competent authority to regulate the social
behavior of man. The four core points from this definition can be indicated as law is about
regulating social behavior, law is normative, law is a system of mandatory norms, and is made
by a competent authority that means by a government organ which has the law making power.

1.3.1: Law has Generality

Law has generality, to apply a specific case. The level of generality of law may differ depending
on the group of human beings which described by general criteria. Rules are general statements
on a possible human behavior. For instance, the Universal Declaration of Human Rights
(UDHR) uses words like all men, everyone, no one, etc.
Article 3 of the UDHR says ‘everyone has the right to life, liberty and security of person.’ This
provision tells us that all persons should get protection of law. Art. 8 of the UDHR also say ‘no
one shall be subjected to arbitrary arrest, detention or exile.’ This is irrespective of color, sex,
culture, race, etc. All men are equal, etc. so that law has a universal character which expresses
possible human behavior and regulates human behavior in a general form.

1.3.2: Law Regulates Social Behavior

Law regulates general human behavior not individual behavior. When we say law regulates
social behavior, it does not concern every kind of individual behavior but the relationship
between human beings and the social behavior of man or woman. Think of somebody took away
your wallet, or committed rape, abduction, or child abuses, inflicting bodily injury, etc. all these
evils come from human behavior which the law shall regulate. Such human behaviors have to be
regulated and people have to be made to behave in a certain accepted standard.

Thus, the nature of law is not to regulate individual behaviors because behaviors are not legal
norms but technical rules, example driving a car. However, the law tries to regulate social
behavior as far as it materializes to certain social interactions of human behavior.

1.3.3: Law is Normative

Law tries to describe and regulate the general human behavior by setting norms or standards of
behavior. For instance, the law prohibits causing bodily injury, theft, arson, murder, and so on.
These are: behavioral standards set by law that everybody shall not behave below the standards.
The standard norms are permissive, prohibitive (mandatory), directive and rewarding norms.

In this case, the law has four positions. These are:

 Prohibitive norms are norms that the law prohibits some behaviors say that one must not do,
is not allowed to do, is for bidden to do, may not do, etc. for example, all criminal provisions
are prohibitive norms.
 Permissive norms- the law permits persons to act alternatively saying that one may do, is
allowed to do, is entitled to do, has the right to do, etc. For example, every citizen has the
right to elect or to be elected
 Directive norms- saying that one shall do, task of doing, etc. Example judges shall take an
oath before assuming office.
 Rewarding norms- such norms encourage persons for what they do good achievements. For
instance, to reward tax exemption for an investor.

1.3.4: Law is made by a Competent Authority

A competent authority makes law. Among the three branches of government, the legislative
organ is competent to make laws, in our case the House of Peoples Representatives. The
executive branch of government is also competent to make subsidiary laws when delegated by
the parliament. Laws made by incompetent organs are not laws and do not satisfy the nature of
law.

1.4: Understanding the Function of Law

The objective of law is to ensure social justice. In order to accommodate the dynamic nature of
society, the law has to be dynamic to be able to entertain such changes. Thus, law is expected to
reflect justness and fairness with the development of the needs of the society.

In fact, law can be an instrument of oppression under despotic or dictatorial regimes. However,
in a modern society, law is expected to be a powerful instrument to change the will of the people
in to practice. Concerning the function of law different scholars have different views. However,
most of them have agreed that law is an instrument of securing justice.

The major functions of law are mentioned as follows:

 Law maintains peace and order in society. That is, to enforce order that helps to protect the
life, peace and property of the society;
 Law is a mechanism of dispute resolution and promote co-operations and understanding
among the society;
 Law limits the power of important government organs and there by promote public and
personal freedoms;
 Law determines the relationship of government with its citizens;
 Law regulates and controls social behavior, this to mean it does not focus on individual
behavior;
 Law protects and respects fundamental human rights and freedoms of individuals rights and
promotes rule of law and social justice; and
 Law promotes economic growth and enables to plan and effectively implement development
activities that satisfy the needs of the society etc.
The FDRE Constitution of 1995 under its preamble addresses the function of law underscoring
as the goals of the constitution. The objectives and functions are mentioned below.

 To enable full and free exercise of the right to self-determination;

 To build a political community founded on the rule of law;
 To ensure peace;
 To build a democratic order;
 To advance economic and social development;
 To promote individual and peoples freedoms and rights;
 To promote equality;
 To promote unity with diversity;
 To enhance economic, social and cultural life of the peoples, etc.
From the above discussions the function of law can be summarized as:

It maintains peace and order. It serves as Conducive ground for development. Another role of
law is to resolve disputes that arises responsibility if one person has a valid legal claim against
another, as in suit for breach of contract. It is important that we bear in mind that law is not
simply a statement of rules of conduct but also a means where by remedies are afforded when
one person has wronged another. It can also be a method of social control, an instrument of
social, political, and economic change. Law is both an instrument of change and a result of
change that take place in a society. Law determines or limits power of government organs. It
determines the relationships of government with its citizens. It protects and determines
fundamental rights and freedoms of individuals. Finally, law responds to the goals, desires,
needs, and aspirations of society.
1.5: Understanding the Legal Systems

Legal system is to mean the entire legal category or arrangements of laws. In the world there are
different types of legal systems but the common and the major legal systems are: the common
law legal system and the civil law legal system. Each of them is discussed here under.

1.5.1: The Civil Law Legal System

The civil law tradition is based on Roman civil law which has ancient roots. There have been
series of compilations of legal rules and codifications of laws in ancient Roman. As a result, the
civil law refers to codified law. It took shape as a national law in the 19 th century. Napoleon’s
rule provided France with unified national body of law after the French Revolution of 1789.
Hence, in the1804 the French civil code, the penal code, the commercial code and the codes of
civil and criminal procedures were enacted.

The civil law legal system is based on codified and written laws enacted by the legislator not
judge made law. The reasoning of the judges is based on deductive method. Judges deduce
articles and provisions from the body of laws provided then, they interpret and apply them. Civil
law legal system is not case law. The civil law legal system also called continental law legal
system, currently, applied in most European countries such as France, Italy, Germany, Latin
America, Asia and Africa. Ethiopia also follows the civil law legal system.

The formation of court structure of Ethiopia is related to the state structure because court
structure of Ethiopia changes with the dynamism of the political situation of the country and
government formation. Ethiopia was under a tradition and informal administrative structures and
judicial system. Hence, there were no established, recognized or institutionalized systems for the
administration of justice. As a result, there was no well-established and uniform hierarchy of
courts, no established procedure for hearing cases, no clearly determined law governing different
activities and affairs, no legal system, no legal profession and judicial service.

Ethiopia inherited the civil law legal system. Although the first written law of Ethiopia was Fetha
Negast, the modern civil code was enacted in 1960 that has 5 books and 3367 Articles. The
commercial code was also enacted in 1960 and has organized into 5 books. The criminal law was
enacted in1957. This shows Ethiopia grouped itself under the civil law legal system in the1950s
when the modern laws enacted.

1.5.2: The Common Law Legal System

The origin of the English common law is traced back to the Norman Conquest in 1066 as English
legal scholars stated. One of the mechanisms that England (UK) used to unify the country was
the establishment of the king’s courts. As the law was based on custom or common or universal
custom to the realm, the body of rules that evolved under the kings courts is called Ceria
Regis ,law that was based on general custom common to the entire realm and became the
beginning of the common law.

Judges were depended on past court decisions and regarded as binding. The practice of deciding
new cases with reference to former decisions is called the doctrine stare-decisis, that is, to stand
on decided cases. The practice of deciding new cases with reference to former court decisions
eventually became a corner stone of the English and American common law legal system.

The body of law that developed under the English legal system consists of the rules of law
announced in court decisions including court interpretations of statutes, regulations, and
provisions of the constitution. Such a law is a common law legal system. This is a judge made or
case law. The proponent countries to the common law legal system are England (UK), USA,
India, Canada and other countries which were former colonies of Great Britain, etc.

From 1066 up to the 18th century the type of law that was dominant in England was the common
law legal system. However, from the late 19 th century it has been continuously replaced by
parliamentary legislation. Currently, statutory law is more important than common law because
when conflict arises between them statutory law is supreme. Thus, parliamentary legislation and
common law or judge made law or case law is the two sources of law in modern common law
legal system.

Currently, most of the laws in a common law legal system are enacted laws. A rule made in the
course of deciding cases, rather than legislation can become common law rule. Judgments given
by superior courts in the hierarchy are binding on lower courts, that is, precedence.
In principle, Ethiopia does not follow the common law legal system practice as of stare-decisis,
that is, to stand on decided cases. Therefore, the decision of higher courts and their interpretation
of laws, do not bind the lower courts because they are not considered as laws. However, today
decision made by federal Supreme Court cassation bench is binding to all courts of the country.
In this case, Ethiopia follows the mixture of the common law legal system approach.

1.5.3: Comparing Civil Law and Common Law Legal Systems

The civil law, also known as continental law, legal system is based on written law and does not
consider customary law as a base because it applies codified law which is enacted by the
legislator. Whereas the common law legal system is based on customary law, that is, unwritten
law and applies case law. Civil law legal system is based on codified law whereas common law
legal system developed gradually from decision of the courts. In civil law legal system judges
mainly depends on codified law but judges do not merely apply the law, in some cases, they
make law (judicial precedent) in the common law legal system. Judges interpret codified laws to
pass judgment. However, in the case law, they create laws but is not binding in the civil law;
whereas, the courts interpretations of law become precedence. It serves as law binding to lower
courts in the common law legal system.

In the common law legal system case law is source of law but in the civil law legal system, case
law is not source of law except in administrative adjudication. In the common law legal system
judges refer to the precedents first and then to the legislation or enacted laws whereas judges
depend only on codified law or enacted laws in the civil law legal system. The civil law legal
system does not based on customary practice as a source for decision whereas the common law
legal system, based on customary practices as a source for decision. There is jury system in
criminal proceedings in the common law legal system .However; there is no jury system in the
civil law legal system criminal proceedings.

Currently, the distinction between the civil law legal system and common law legal system is not
watertight. This is because legislation of parliament has minimized the dominance of common
law in England. Thus, the main source of law in the common law countries has become enacted
legislation. Similarly, the civil law countries of Europe have incorporated to their written laws
principles which were formerly limited to common law legal system. Case law is being used in
French tort and administrative adjudicative process. Since, their similarities are more than their
distinction; making direct comparison of both legal systems today is difficult.

1.6: Source of Law

This section dedicated to study different sources of law. Source of law is to mean the situation
where by the law emanates or creates. Law can be made from different sources, such as
customary law, legislation, judicial decision, legal doctrine and Treaty.

1.6.1: Customary Law as a Source of Law

Customary practice can be defined as the continuous repetition of certain conduct which people
of a certain community accept as necessary are willingly bound by it. In this case, a habit or
traditional practice which does not have continuous applicability, acceptability and willingness
of persons to be bound by it, cannot be considered as customary law. Custom is one of the oldest
sources of law. Before the emergence of government, people in all communities were governed
in accordance with customary rules of their society.

Customary law is composed of those customs which have been recognized by the state as law
and the enforcement of which is guaranteed by the state. Customary law was a wide spread
source of law during the feudal times, while its significance diminished during the capital
development. The main reason for this is that usually customary law operates in social
communities below national law.

Many agree that for a custom to be accepted as governing human conduct and relationships, it
has to fulfill certain requirements. One of the requirements is, it has to be recognized as law by
the judge and influential elders of the time. For custom to be recognized it has to be a right or a
duty, which has come to exist through popular consent. In the common law legal tradition, the
judges were the one who included local custom as part of the common law legal system.
Custom to be part of the common law, it has to fulfill the requirements that to form from time
immemorial; accept continuously by the local population without a record of opposition to the
custom, that is, practiced continually without interruption and without opposition by certain
groups of the society in relation to the conduct; that shall be acceptable to bind their conduct
with certainty; the custom shall be reasonable, that is, it must conform to the norms of justice,
fairness and public values and lastly, custom to be valid must be in conformity with statute law
or already universally accepted custom common consent.

In Ethiopia custom serves as sources of law when it is sufficiently general and practiced by
majority of the population, which is not contrary to natural justice, which is not contrary to social
and economic progress and which can have legal clarity. This provides under Article 3347(1) of
the civic code and Art.9 (1) of FDRE Constitution.

1.6.2: Legislation as a Source of Law

Legislations or statutory laws are acts of competent state organs which directly formulate the
legal rules and equip them legal force. Today legislation being predominant source of law both in
the civil law and common law legal systems. Legislation may be direct or indirect. Direct
legislation is made by the supreme legislative body of a government. Indirect legislation is made
by other subordinate organs of a government when they are delegated to legislate by the supreme
legislative body of the government. In other words they are supreme legislation and subordinate
legislation based on who made them.

The Constitution is the supreme legislation that any laws or legislations emanate from it. The
Constitution gives power to the respective legislative organ to legislate laws. For instance, the
Constitution of the Federal Democratic Republic of Ethiopia Article 55(1) gives power to the
House of People Representatives (HPR) of Ethiopia to enact proclamations-legislations of the
legislative organ.

The House has also delegated to the Council of Ministers the power to issue or enact regulations
for the proper implementation of proclamation, that is, legislation of the executive organ such as
regulation, directives, etc. Currently, Legislations of local governments are also sources of law in
Ethiopia.
In a federal form of government there are to legislatures, that are, Federal legislative organ which
has power in issuing legislations what serve for federal or central government matters and local
or state legislators which enact laws that serve for their respective states. In a unitary form of
government there is only one legislative organ, that is, the central government legislator which
enacts laws that serves the entire nation. Generally, constitution, legislation of the legislative
organs (proclamation), legislation of the executive organ (regulation, directives, circulars) and
legislations local governments are the sources of law.

1.6.3: Judicial Decision as a Source of Law

Judicial precedence is important source of law in the common law legal system. There are
above, decisions of higher courts which are binding for the same court and for subordinate courts
when they decide, later on, on the same or similar case. In the civil law legal system indicial
precedent is not a source of law and lower courts are not due to bound by decisions of higher
courts. Infect, some civil law legal system follower countries, it is observed decision of supreme
courts, especially, decision made by cassation benches are binding to the lower court. This is
effective in Ethiopia, now days which the Federal Supreme Court cassation bench is given power
by proclamation its decision to be binding the lower courts of all the country.

The doctrine of precedence has two meanings. First, precedence includes reported case law
which may be cited and followed by the courts. Second, precedence means that case law has a
great binding authority that has to be followed, in the common law legal system. In the common
law legal system there are two kinds of precedence’s. These are authoritative and persuasive
precedence’s. Authoritative precedence’s are the decisions of superior courts which are binding
on subordinate courses. The judges of the subordinate courts must follow them even if they do
not approve them. It is the authoritative precedence’s which the source of law is. The pervasive
precedence’s are precedence’s that the judges are under no obligation to follow but which they
may take in to account when they pass judgment based on their own findings.

1.6.4: Legal Doctrine as a Source of Law

This is taking the research of famous legal jurists as a reference. Critique of existing law,
scholarly opinions, and case laws may have persuasive power. Judges, lawyers, legislators, and
administrators may refer to such opinions; however, they do not take them as source of law.
Academic opinions, journals of law, legal encyclopedias, law text books, completions of case
law, and manuals of laws serve as reference to widen the knowledge and application of lawyers.
However, they do not serve as a source of law in a strict sense of the word. In Ethiopia, legal
doctrine is not recognized as source of law. However, it has only persuasive and instructive
value.

1.6.5:Treaty as a Source of Law

Treaty is an agreement between states. If the agreement is made or singed between two states, it
is bilateral treaty. However, if the treaty is signed by more than two states, it is multi-lateral. A
treaty may have a discussion stage, signing stage and ratification stage. It is after such processes
have been performed that a treaty becomes a source of law for the respective countries. For
instance, FDRE constitution Article 9(4) state that “any international convention ratified by
Ethiopia is an integral part of the land”, this means, it is after the treaty ratified by the legislative
organ that can a source of law in both the civil law legal system and common law legal system.

1.7: Classifying Laws

Classification of law is to mean breaking down the law into a manageable size. Classification is
of law is important in order to make it manageable, coherent and consistent in application. It is
also necessary to classify law in order to make it easily comprehendible by the lawyers, law
enforcing institutions and the societies; and hence, to make it accessible to justice. Thus, law can
be classified in to public law and private law, substantive law and procedural law, national law
and international law and may be classified in to criminal and civil laws.

1.7.1: Public Law and Private Law

Law is classified in to public law and private law. The detail of each of them is discussed below,
so you should read more.

1.7.1.1: Public Law

It is a branch of law that regulates relations among state organs and legal relations in which a
state as a public power is involved. It also defines relationship of a state with its citizens. The
legislative, the executive and the judiciary are the state organs that are central to public law and
determine their power. Public law is also concerned with the concepts and ideas such as the rule
of law, the supremacy of the constitution, the separation of powers and the control of powers of
the executive and administrative agencies. Public law can be classified as national public law and
public international law.

Public law includes those bodies of laws that affect the interest of the public or society at large,
example, constitutional law, administrative law, public finance law, criminal law, etc.
Constitution is supreme law of the land which defines powers and functions of the state organs.
Administrative law is a branch of public law which deals with the actual operation of
administrative agencies. Criminal law is part of public law that controls criminal acts.

1.7.1.2: Private Law

Itis a branch of law that regulates relations among individuals and a state engaged itself in
private business sectors like activities in commercial banks, transport, tourism, industry etc. It
regulates relations among private person on equal status. It is usually formulated by an
agreement of the parties, example contract law. Private law usually has a gap filling mission
though these may sometimes be mandatory provisions of the law to be strictly observed. Even in
case of dispute private persons in their private capacity are to handle their cases, that is, the state
will not involve in their affair except, as a court. When they decide to resolve their dispute out of
courts, they are entitled to do it. Private law can be classified in Private National or domestic law
and private international law that will discuss later.

Private law encompasses the subject of contract, torts, property, etc. Private law includes
business law, that is, the major focus of this course. Before defining business law, it is proper to
define what business is to mean. Business is an occupation, employment, professional or
commercial activity engaged in for gain or livelihood (Black’s Law Dictionary).Therefore,
business law is the inter-disciplinary branch of law that regulates and facilitates business or
commercial undertakings.

Business law aims at allowing business community to do business in the way they want to do. It
tries to maintain the freedom of the business men in their bargaining with each other regarding
their contracts and which also stands to protect the court from intervention in commercial
contracts. The basis of business law lies in the autonomy or freedom of the party to freely
arrange their affairs.

Business law tries to meet the following common needs of business communities.

 They demand that their agreement has to be respected

 They require the decision of the court on commercial matters to be predictable so that they
would know what they should do.
 They have an interest that the law to be flexible enough to accommodate business practice.
 They need their disputes to be settled or resolved quickly without rigorous procedures and
with inexpensive manners because time itself is money for business community.
1.7.2: Substantive Law and Procedural Law

Law sometimes classified as substantive and procedural law which comprehensively helps to
achieve its intended result. They are briefly discussed as follows.

1.7.2.1: Substantive Law

It is a law that defines the rights, privileges and imposes duties of either a state or an individual.
Substantive law comprises all public laws such as constitutional law, administrative law criminal
law nationality law, public finance law, and civil or private laws such as law of contract, law
property, commercial law, etc. as well as public and private international laws. This is because
all public national and public international laws lay down rights, privileges and imposes duties
by law. Private national law and private international law also lay down rights, privileges and
imposes duties and liabilities as the result of the agreement made by the parties to be bound.

1.7.2.2: Procedural Law

It is a law that used to decide disputes is procedural law. The legal procedure or process that
determines how a law suit is begun, how the fill is open, how the trial is conducted how appeals
are taken, and how a judgment is enforced is procedural law. Procedural law establishes the
procedures or mechanisms by which rights, privileges are enforced and protected and obligations
to be executed. Procedural law comprises criminal procedure law and civil procedure law.

Criminal procedure law regulates the process for addressing violations of substantive criminal
law. Criminal procedure law is a branch of public law which facilitates the prosecution of
criminal cases and regulates criminal proceedings in a court room. It is bound by the
constitutional provisions that safe guarding the rights of suspects and criminals. Criminal cases
are handled by the state. Civil procedure law also consists of the rules by which courts conduct
civil trials. The rules define the process that courts will follow when hearing cases of a civil
nature. Civil court trials are concerned with the judicial resolution of claims by an individual or
groups against another(s). the rules of civil procedure explain how a law suit shall be
commenced by the plaintiff, what kind of services of process are required, the forms of
pleadings, motions, order allowed, the process for judgment and the various available remedies.

1.7.3: National Law and International Law

Law is also classified in to national and international based on their scope of application. Thus,
should identify their nature as follows.

1.7.3.1: National Law

It is also called domestic or municipal law. It is national law because it is made by one sovereign
state legislator. It is law because it regulates internal state and human behavior as well as the
character in which other laws may have. There is a relationship of authority, that is, superior
subordinate organs and laws relationships. National law also classified in to public and private
laws. Public national law consists of constitution, administrative law, criminal law, criminal
procedure law, nationality law, and public finance law. Private national law consists of laws such
as law of contract, family law, property law, succession law, commercial law (business law),
administrative contract, and civil procedure law.

1.7.3.2: International Law

It is a law which has a different character from domestic law. International law also classifies in
to public international law and private international law. Public international law is a law that
regulates relations between two or more sovereign states. It is public law because the states act
and regulate social behavior. It is a rule of behavior of states which is binding in their relations
with each other. There is a relationship of equality, that is, states have equal rights irrespective of
their size, economy, population, etc. Public international Law consists of convention, covenant,
etc.

Private international law regulates relations of individuals of different citizens. Private

international law also called conflict of laws. Private international law comprises provisions of
national law regarding contracts and law suits involving foreign laws or jurisdiction. Private
international law concerned with private relationships of two states citizens, example, when an
Ethiopian woman marries an Italian man. Their marriage or divorce relation shall be governed by
private international law. Any succession claim of either citizen against other citizens or any
marriage relationship or any international trade made between individual different citizens is
governed by private international law.

International law is created mainly by two ways. These are by treaty and international custom.
Treaty is a binding agreement made between states. International custom is a custom that grew
up with in the relationship of states from time immemorial. Thus, international law consists of a
body of customary and conventional rules, which are accepted as being binding by the states in
their mutual dealings with one another. In modern times the main source of international law is
treaty.

1.7.4: Criminal Law and Civil Law

1.7.4.1: Criminal law

Criminal law is a branch of public law that deals with criminal matters such as committing
murder, rape, theft, abduction, corruption, etc. Criminal law studies issues of criminal matters.
Criminal law can be classified in to national or domestic criminal law and international criminal
law. National criminal law regulates crimes proactively before hand and lays down punishments
for offenders when they are committing offences in a given country. International criminal law
regulates crimes proactively before hand and lays down punishments for offenders when they are
committing international offences. Crimes that are considered as international are terrorism, drug
trafficking, genocide, human trafficking, etc. The purpose of criminal law is to maintain peace
and order of the society at national and international level.
1.7.4.2: Civil Law

Civil Law is a branch of national private law that deals with civil matters such as when persons
conclude contracts to do different business transactions, concluding marriage, making a will,
donation, agreements made on buying and selling goods, etc. Civil law is also classified in to
national and international depending on its scope of application.

1.8: Hierarchy of Laws

Hierarchy oflaws is to mean the order of laws according to which they obeyed. Hierarchy oflaws
shows hierarchy of government organs. For example, constitution is superior in hierarchy than
any other laws because it is made by the higher legislative organ.

1.8.1: Definition and Nature of Hierarchy of Laws

In a government there is hierarchy of government organs. As the same time we have hierarchy of
laws. Thus, hierarchy of laws is nothing but the reflection of hierarchy of state organs. Hierarchy
of laws can be defined as a coordinated arrangement of laws among which a superior subordinate
relationship is expressed as a direct relation of the power order in the law making authorities.

The lower state organ and the lower law is a subordinate to the superior state organ and superior
laws. The term hierarchy of laws refers to a differentiation in status forming a superior
subordinate relationship in the chain of laws

Hierarchy of laws creates separation of powers of state organs such as the legislative, the
executive and judiciary. This implies that one form of state organs will control, and check the
other. It also implies that the principle of rule of law requires each state organ to work in
accordance to powers and functions given to it by law. In this case, hierarchy of laws is
necessary and decisive.

1.8.2: Primary and Secondary Legislations

Legislation can be divided in to: primary and secondary legislations. Primary legislations are
those types of laws issued by the legislative organ after having undergone a certain process of
deliberation and whose main contents are basic policies, for example, proclamation. What the
legislative organ of state legislates as statutes (proclamation) stands superior than any other law
except the constitution. Secondary legislation is also called subordinate legislation. Subordinate
legislations are laws that are given to be issued by the subordinate organ of the state. Secondary
legislations are laws made by inferior state organs when the legislative body of the state
delegates them to legislate, such rules, example, regulations and directives. The subordinate or
secondary legislation can be enacted by the executive body through delegation.

The legislative organ to delegate the executive to enact subordinate laws is because of the
following three reasons:

 To reduce work load

 Due to the technical nature of the laws or technical competency. The legislative organ is
not with full of technical experts because they are elected from the society having different
back ground. Thus, the legislative body simply given for the lower organ for technical
activities or competency
 To obtain flexibility- this is in order to shorten the process of delivering the legislation.
Because the longer the time the more rigorous the process. Thus, the lower importance of
legislations is permitted to be issued or enacted by the lower organs such as council of
ministers or local government’s cabinet.
The principles of the hierarchy of laws are very important when two provision of the law
contradict each other. In such manner, the two principles of hierarchy of laws may apply.

 When two laws are in equal footing or status contradicts each other the later in time
prevails over the former.
 When two different laws, which have not equal footing or status contradict each other the
superior in hierarchy prevails over the inferior or subordinate. For example, proclamation
prevails over the regulation.
In the hierarchy of laws constitution is superior to proclamation. Proclamation is superior to
regulation. Regulation is superior to directive.

Constitution proclamation Regulation Decree Directives Notice.

In Ethiopia hierarchy of laws provided different forms in different government systems

Hierarchy of Laws during the Monarchy

  Supreme Laws were- the 1955 revised constitution and International Treaties.
 Primary laws were – proclamation, Decrees and Orders.
 Subordinate laws were-legal, Public and General Notice.

Hierarchy of Laws under the PDRE (Peoples Democratic Republic of Ethiopia)

1. Supreme law of the land was constitution

2. Primary Legislations
Proclamation Issued by national shengo

Decrees and special decrees Issued by council of state

Presidential decrees, special presidential Issued by president of the republic

decrees

3. Secondary legislations were:

Regulation and directives By council of ministers

Directives By autonomous and administrative regions

Hierarchy of Laws under the FDRE(Federal Democratic Republic of Ethiopia)

Constitution of the FDRE

Proclamation issued by HPR

Regulation Decree

All the primary legislation (proclamation) and secondary legislations (regulation, decrees as well
as directives) shall not contradict with each other and with the constitution too.
In state governments there is also hierarchy of laws. State constitution is supreme law of the
respective states. Proclamation, enacted laws of state council is subordinate laws to the
constitution. Regulation, emergency decree and directive are subordinate laws to the primary
law. All state laws shall not contradict with federal laws.

1.8.3: Constitution as a Supreme Law in Hierarchy

Constitution is neither of the primary and secondary legislation because it is enacted by different
procedures, in adoption, interpretation and amendment. Constitution is supreme law of the land
in hierarchy. Constitution expressly spelt out the powers and responsibilities of important state
organs. It shows how the important state organs are to be established and the relationship among
themselves. It lays down basic principles that may serve as a legal basis for other branches of
laws. It lays down fundamental rights of citizens and determines relationship between the state
and its citizens. Constitution is supreme in hierarchy because all laws are emanated from it and
any laws contrary to it shall be of no effect.