Jimma University

School of Law
Business law
Instructor: Habtamu G.
E-MAIL: [email protected]

2021/2022 A.Y
Introduction to Business Law

 Business law is a law which deals with business

transactions.
 It regulates commercial activities of individuals.
 It has the goal of governing the private and public
affairs of citizens in commercial relationships.

 Business law by regulating commercial transaction

brings a smooth relationship among
business actors in a business transaction.

 Business law is binding on business persons

in order to achieve the goal of creating smooth
business relationships.

Cont’d…

Course objective
The very purpose of this course is to introduce business
students with the legal environment which is related to their
field of study.

Learning outcome
At the end of this course, as a business student you are
expected to know laws which regulates economic
activities/economic order. In order to hit this target;

 This course contains introduction to law, law of person,

contract, sale, security device, agency, business
organizations/partnerships, insurance, and negotiable
instruments.
Chapter One
Introduction to Law

 What is law?
 Why we need law?
 Cont’d…
1) Definition
what is law?
 No consensus in defining the term “law”;

 Different scholars have tried to define law

differently and propose their own theory.
Among the theories;
 Natural law theory; law is a rule of conduct
which sets by the supernatural forces to govern
the people.
 The Greek philosophers belong to this group.

Aristotle, Socrates…

 Positive law theory; according to this theory,

law is the command of the sovereign and backed
Cont’d…

 The realist theory; according to this theory Law

is “…the prophesies of what the courts will do in
fact and nothing more pretentious …”;
◦ law is a set of rules that allowed one to predict how
a court would resolve a particular dispute.
◦ So, what the court decided is, the law.

 Sociological theory of law; law is not what is

written on the paper nor what is decided by the
court, rather it is the one actually practiced by the
society.
◦ This theory gives more emphasis to the custom
of the society.
Cont’d…

 In general, law may be described in terms of

legal order tacitly or formally accepted by the
society and enforced.

 A body of binding rules sufficient compliance

of them is ensured by some mechanism accepted
by community is called law.
2. Basic Features of Law
 Analyzing the features and nature common to all laws would
help us to understand the concept of law.
 Among these features and natures, the ones considered as
essential include generality, normativity and sanction.

i) Generality
 Law is a general rule of human conduct.
 A law can govern millions of similar acts and Millions of people
since, it doesn’t mention the name of specific persons.
 So that, it saves the legislator from making millions of laws for
similar acts, which may make the law unnecessarily bulky.

 The most obvious feature of law is its generality;

 It does not specify the names of specific persons or
behaviors.

 Hence, its generality is both in terms of the individuals

governed and in terms of the social behavior controlled.
Cont’d…
E.g.
1. “Every one has the right to life, liberty and the
security of a person.” [Art 3, UDHR; 1948].
 This law is made to be applicable to every person on

this world. Therefore, it is universal.

2. “The term office of the president shall be six years.

No person shall be selected president for more than two
terms” [Article 70(4)FDRE constitution].
 This law is made to be applicable only to a person

who becomes a president in Ethiopia.

 Under both illustrations, the subjects of laws are

given in general terms.
 However, the extents of the generalities decrease
from universality to an individual person.
Cont’d…
II) Normativity
 One of the distinctive features of law is that it is a
normative statement;
 Law does not simply describe or explain the
human conduct it is made to control.
 Rather it is created with the intention to create
some norms (a standard pattern of behavior that is
considered normal)in the society.
How can a law create a norm?
 Law creates norms by allowing, ordering or
prohibiting the social behavior. This shows the
normative feature of the law.

 Based on this feature, law can be classified as

permissive, directive or prohibitive.
Cont’d…
1. Permissive laws: give right or option to their subjects
whether to act or not to act.
◦ E.g. the right to freedom of association art.31 of FDRE
constitution.
2. Directive laws: orders, directs or commands the
subject (people) to do the act provided in the law.
 It is not optional.
 Therefore, the subject has legal duty to do it whether s/he
likes it or not, otherwise, there is an evil consequence
(punishment). E.g. TAX law
 In general, directive laws are mandatory provisions of laws.

3. Prohibitive laws: discourages the subject from doing

the act required not to be done.
◦ If the subject does the act against the prohibition, an
evil follows as the consequence of the violation.
◦ All criminal code provisions are prohibitive laws.
Cont’d…

III) Sanction

 Each and every member of a society is

required to follow the law.

 Where there is violation of the law sanction would

follow.

 Sanction according to Black’s Law Dictionary, is a

penalty or coercive measure that results from
failure to comply a law.
4. Functions of Law
 Why we need law?
 Jurists have expressed different views about the
purpose and function of law. Generally we can mention
the following as some of the functions of law;

A. Maintains peace and security in the society;

 law delves/ interferes into almost every social
interaction.
 It regulates the way a particular relationship is to be
created, maintained and broken.
 It steps into govern detailed individual
interactions.
Cont’d…

 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;
Cont’d…
B. Protects citizens from arbitrary and
excessive governmental actions.

 The powers and functions of the government

and the relationship the government would have
with citizens are usually defined by a constitution
law, and

 This law restrains undue governmental

encroachment in the affairs of subjects.
 Human rights provisions of the constitution are
typical examples in this regard
Cont’d…

C. It is a tool to bring social change

 By forcing to act or not to act in a certain way

law can mold the conduct of the society.

 It is an instrument to reduce/eradicate some
unwanted/harmful social practices.
◦ Early marriage, female genital mutilation(FGM)
are for instance harmful traditional practices in
Ethiopia.

 The law clearly (the family code and the

criminal code) prohibited such acts.
 So, in due course this practice would eradicate
among the society.
Cont’d…

D. Encourage innovation

 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 of better
means of life;
5. Classifications of Law
 The body of law is huge.

 Classification of laws is the systematization of

the law based on the subject matter or scope of
application for the purpose of finding the
relevant law more easily and to simplify it
for study/education.

1. We can classify law based on the subject

matter it regulates as follows;
Cont’d…
1. Public Vs. Private Law
Public 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.
Cont’d…

Private law
 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.
Cont’d…

2. Substantive Vs. Procedural Law

 Substantive law includes all laws that define, describe,
regulate and create legal rights and obligations;
 Substantive law tells us what our rights are;

 Procedural law sets out the methods of enforcing

the rights established by substantive law;
 In brief procedural law tells us how to exercise
substantive rights. Civil procedure, criminal procedure
and evidence are typical examples;
Cont’d…

3. Civil Vs. Criminal Law

 Civil law is concerned with the duties that exist
between persons or between citizens and their
government (the latter as an 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;
Cont’d…

 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;
Cont’d…

2. Based on the scope of application we can classify laws

as follows;

1. Federal Vs. state laws

 Such dichotomy is available for countries which
adopt the system of federalism. In this system of
government there are two layers of government i.e.
federal and regional.
 Each layer of government have the power to
make laws.
 So we will have a law made by
1. the federal government which will be applicable to
the federal territory, (unless it is the one
uniformly applicable through out the country) and
2. State governments which will be applicable
Cont’d…

2. Domestic vs. international law;

 Domestic law is the law enacted by the state and its
applicability will be limited in the territory of the author state.
 Govern the conduct of the people who fond in its territory

 But international law will govern international actors.

 The main international actors are states. Apart from states it
also governs international organizations such as UN, regional
organizations such as AU etc.
 So, its scope of application is wider than the domestic
laws.
 6. Sources of law
 It is answering the question where the judge
originates the law.
 In our country context we do have the following

sources;

 Constitution;
◦ it is the supreme law of the land. Any law, customary
practice,…which contradicts the constitution is invalid.
◦ Laws emanate from the constitution.
◦ It gives a general guideline and principles then the specific
things will be regulated by other laws.
 Proclamations; the House of Peoples
Representative( HPR) is entrusted to enact
proclamations.
Cont’d…

 Regulations; these are enacted by the council of

ministers up on the delegation from the HPR.
 Directives; each ministries may enact directives
through delegation from the council of ministers.
Mostly they are intended to regulate detail and
technical matters of the subject area.
 International agreements ratified by
Ethiopia; once an international agreement
ratified by HPR, it will be part of the law of the
land as per art. 9(4) of our constitution.
Cont’d…
 State laws; laws enacted by regional governments.
 Custom; sometimes the law may suffer a gap in regulating
some issues or the law may not clear, in such cases the judge
can use custom as a gap filling.
 Religion; Article 34(5) of the FDRE constitution provides that
private and family disputes can be resolved by rules of the
religion. E.g. sharia court
◦ In addition to this article 3 and 26 of revised family code clearly
recognizes marriage celebrated by fulfilling the requirements of
certain religion accepted as one type of marriage.
 Court decisions; if the decision is a binding one, such as a
decision given by the Federal Supreme Court Cassation
decision.
7.HIERARCHY OF LAWS

 The term “hierarchy” expresses the “ascending series

ranks or degrees of power and authority with the
correlative subjection, each to the one next
above”.
 It is used to describe the structure of relationship with
varying amount of power and authority.
 It is believed that laws derive their validity from the
authority that respective makers possess.
 Thus, the superior and subordinate kind of relationship
exists between the laws.

 Therefore, hierarchy of laws is “a chain of subordination”

between laws.
Cont’d…

 The FDRE Constitution in its Art 9(1) states that the

Constitution is the supreme law of the land.
 It reads as “any law, customary practice, and act of
an agency of government or official act that
contravenes the Constitution is invalid.”
 FDRE constitution
 HPR Legislation (proclamation) art. 50(3) +
international agreements
 Decree (state of emergency art. 93)
 Other -laws-regulation,
 directives etc.
CH-2 is LOadinG…………………………!