Addis Ababa University College of Business and Economics School of Commerce

Business Law supplementary Exam, December 2020

Answer Sheet
Part I: Multiple choices (90pts.)
1.________ 11._______ 21._________ 31._______ 41._______ 51.__________
2. _______ 12. _______ 22.__________32. _______ 42._______ 52.__________
3.________ 13.________ 23.________ 33. _______ 43._______ 53.__________
4.________ 14.________ 24._________ 34. _______ 44 ._______ 54. __________
5.________ 15.________ 25._________ 35. _______ 45.________ 55.__________
6.________ 16._______ 26._________ 36.______ 46 .________ 56.__________
7.________ 17._______ 27.________ 37._______ 47.________ 57.__________
8.________ 18._______ 28.________ 38._______ 48._________ 58._________
9.________ 19._________ 29.________ 39._______ 49 .__________ 59._________
10._______ 20._________ 30.________ 40. ________ 50.__________ 60. _________

Part I: Choose the best answer from the given alternatives and put it on the answer sheet provided
on page one of this exam paper (1pt each).
1. Naturalists define law based on:
A. the characteristics of the law D. A and B
B. the content of the law E. B and C
C. Actual operation of the law F. All
2. The definition of law, “law is a means of exploiting and dominating the society” belongs to:
A. the Marxian D. the Functionalists
B. the Positivists E. All

1
 C. the Naturalists F. none
3. The definition of law, “law is a Command of the sovereign backed by sanction” belongs to:
A. the Marxian D. the Functionalists
B. the Positivists E. All
C. the Naturalists F. none
4. Which of the following is correct about nature of law?
A. .Law is made by a competent authority E. A and C
B. Law determines power of government F. Band D
C .Law has generality. G. All
D. Law ascertains peace and order H. none
5. Which of the following statement is incorrect about function of law?
A. .Law regulates social behavior E. law protects and respects human right
B. Law determines power of government F. Law brings development to exist
C. Law is normative. G. All
D. Law ascertains peace and order H. none
6. Which of the following sources of law are the major sources of law in Ethiopia?
A. Customary law D. Legal doctrine G. A, B and E
B. Legislation E. Treaty H. All
C. Judicial decision F. A, B, C and D
7. Public law:
A. is a mechanism of enforcement of rights and duties.
B. gives rights and privileges and imposes duties
C. determines power of government and rights and duties of citizens
D. determines relationships of individuals.
E. determines relationships of government.
F. All

2
8. Assuming that Mohammed is an employee of Nib Bank and he is earning 5,000birr monthly
salary. He pays 938 birr income tax to the government every month. Which of the following
statement is correct?
A. He has an obligation not to do which emanates from law.
B. He has an obligation to do which emanates from law.
C. He has an obligation to do which emanates from contract.
D. He has an obligation to do which emanates from law as well as from contract.
E. A and B F.A and C G. All
9. Which of the following statement is correct about marriage contract?
A. marriage contract can be formed by at least two persons
B. marriage contract can be varied
C. marriage contract can be extinguished only by divorce
D. marriage contract can`t be extinguished
E. All
F. None
10. On 25 March, 2012 Melat offered Halima on sale of BMW model 2006 automobile car at the
price of 600,000 birr to be delivered on April30, 2012 at 12 noon in Addis Ababa, Piazza, at the
business place of Melat. Halima has agreed on most of the details but he requested the Price of the
car to be 550,000birr on 20 April, 2012.But, Melat remained silent. Which of the following is true
about this case?
A. Melat is accepting Halima`s offer D. B and C
B. no contract is concluded between them E. All
C. Halima made a counter-offer F. none
11. In the case provided on question 10 above what conditions may resulted in Melat as
Accepted when remained silent for the offer of Halima?
A. When the offer made is to continue or vary their existing contract.
B. When the offer is subsidiary or complementary to their existing contract.
C. Where the contract is a contract of adhesion.
D. A&B
E. All

3
12. In the case provided on question 10 above, when did the contract conclude?
A. When Melat offered Halima on 25 March, 2012
B. When Halima requested the price to be 550,000birr on 20 April, 2012
C. When Melat remained silent
D. When Melat accepted the request of Halima E. None
13.Ruth concluded one year contract with Alliance parking service private limited company
(P.L.C.) expressing that to park her three cars permanently. She paid 3000birr earnest and the
company gave her confirmation. What would be the possible form of the contract that they use?
A. written form D. B and C
B. oral form E. A and B
C. by conduct F. All
14. In the case provided on question13 above what would be the possible form of the contract had
they not been expressed in their agreement?
A. oral form D.A and C
B. by conduct E. B & C
C. written form F. None
15. Bethlehem, a seller and Musa, a buyer have concluded a contract that the seller to deliver a kilo
of cocaine at the price of 10,000 birr to the buyer`s business area, piazza, shop No. 97, A.A. on
March 28/2012, at 11A.M. Which of the following statement is correct about this contract?
A. The object of the contract is unlawful D. The object of the contract is immoral
B. The object of the contract is impossible E.A and D F. All
C. The object of the contract is not clearly and sufficiently defined.
16. Alem, a wife of Chanie, a prisoner and Superintendent Betweded, a chief officer in prison
administration, concluded a contract on a sale of a car at the price of 600,000birr. During the
conclusion of the contract Betweded promised Alem if she sold the car at the price mentioned he
will make the punishment of Chanie to reduce to15 years and Alem has agreed, but the court
sentenced Chanie capital punishment. The actual price of the car during the conclusion of the
contract was 800,000 birr. What legal ground does Alem has to invalidate the contract?
A. Consent of Alem is defective because of psychological duress made by Betweded
B. Consent of Alem is defective because of physical duress made by Betweded
C. Consent of Alem is defective because of fraud made by Betweded

4
 D. Consent of Alem is defective because of mistake made by Alem
E. All
17. In the case provided on question 16 what essential element of a contract is violated if the
contract has been made between Betweded and Chanie.
A. Consent of Chanie D. form of the contract
B. Capacity of Chanie E. A and B
C. Object of the contract F. All
18. Which of the following statement is not correct?
A. a contract can be invalid because of non-performance
B. a contract can be invalid because of force majeure
C. a contract can be invalid because of cancellation
D. a contract can be invalid because of termination
E. a contract can`t be invalid because of incapacity of the parties
F. All
G. none
19. Which of the statement is incorrect?
A. a general partnership has trade name D. B and C
B. an ordinary partnership has trade name. E. A and C
C. a share company has maximum100 shareholders F. None
20. Adanech, Ruth and Yonas established a business organization on September 1/2008. Adanech
contributed skill which worth’s 20,000 birr, Ruth contributed 25,000birr and Yonas contributed
30,000birr and have legal personality. In their contract they have stated that “any person who
contributes skill can participate in gain but not in loss.” They also borrowed 80,000brr from the
Commercial Bank of Ethiopia( CBE),a creditor on September 1/2010 thinking that to expand their
business but on November 30/2012 the court declared it bankrupt and 60,000birr of their loan is
not paid. What possible form of business organization do they establish?
A. General partnership. E. C and D
B. Ordinary partnership F. A, B and C
C. private limited company G. All
D. Share company. H. none
21. In the case provided on question 20, who is liable for the debt of the business organization?
A. Ruth and Yonas D. Adanech and Ruth
B. Adanech, Ruth and Yonas E. CBE

5
 C. Adanech and Yonas F. the business organization
22. In the case provided on question 20, let`s assume that Ruth has nothing private money and
property to pay. Who is liable for the debt of the business organization?
A. Adanech and Yonas D. Adanech
B. Adanech, Ruth and Yonas E. the business organization
C. Yonas F. none
23. In the case provided on question 20, let`s assume that Ruth and Yonas have nothing private
money and property to pay. Who is liable for the debt of the business organization?
A. Adanech, Ruth and Yonas D. the business organization
B. Adanech, E. CBE
C. Adanech and Yonas F. All
24. In the case provided on question 20, what type of liability do the parties have?
A. Limited liability D. B and C
B. Unlimited liability E.A and B
C. Joint and several liability F. All
25. In the case provided on question 20, let`s assume that all the parties contributed in cash and
their names is mentioned as the name of the business organization. What possible form of business
organization do they establish?
A. Share company. D. Ordinary partnership
B. General partnership. E. Joint venture
C. private limited company F. All
26. In the case provided on question 25, who is liable for the debt of the business organization
A. Ruth and Yonas D. Adanech, Ruth and Yonas
B. Adanech and Ruth E. CBE
C. Adanech and Yonas F. the business organization
27. In the case provided on question 25, what type of liability do the parties have?
A. Unlimited liability D. the parties and the business are distinctive
B. limited liability E. A and C
C. Joint and several liability F. B and C

6
28. Identify the wrong concept about acquisition of personality of legal persons.
A Sue or be sued in his/her name D. it enables to have residence
B. Own property E. All
C. enables a person to perform any acts F. none
29. Which of the following statement is true about sales contract?
A. It governs only corporeal moveable goods in good faith.
B. It governs immoveable goods and special goods.
C. It governs incorporeal moveable goods and lost and stolen moveable goods.
D. It governs all forms of goods and services.
E. All F. none
30. Which of the following is incorrect about the requirements for a valid sales contract?
A. Existence of the object of the contract. D. Determination of price
B. Consent and capacity of the seller and the buyer is required. E. All
C. Written form F. None
31. Which of the following is the only obligation of the seller?
A. Preservation of the goods sold D. Cover expenses
B. delivering the goods sold E. A and D
C. Paying price F. All
32. The common obligation of the seller and buyer is:
A. obligation to pay price C. Obligation to preserve the thing sold
B. Obligation to take delivery D. Obligation to give warranty against dispossession. E. All
33. Implied warranty against dispossession may be affected by:
A. the defect in the subject matter of the goods sold D. the defect in the title of the seller
B. awareness of the threat of eviction E. A and B
C. awareness of the defective nature of the goods sold F. C and D

7
34. Which of the following transactions are governed by sales contract/law?
A. Immovable goods D. Incorporeal movable goods
B. Movable goods in good faith E. Stolen and lost things
C. Special goods F. All Movable goods G. All
35. Delivery and transfer of ownership title of the thing sold from the seller to the buyer are very
important in sales contract. This is because………………
A. It is at the time of delivery that risk transfers. D. A and C
B. It is at the time of delivery that ownership title transfers E. A and B
C. it is at the time of transfer of ownership title that risk transfers F. All
36. From among the following modes of delivery the seller is required to hand over the document
which represents the things sold to the buyer.
A. actual delivery D. A and B
B. symbolic delivery E. B and C
C. constructive delivery F. All
37. Among the following essential elements of contract are (is) a mandatory requirement for
the formation of agency contract.
A. Capacity of the agent D. Consent of the agent and the principal
B. Object of agency contract. E. Form of agency contract
C. Capacity of the principal F. All except A
38. Agency contract may be emanates from.
A. the express agreement of the agent and the principal
B. the operation of law
C. the implied agreement of the agent and the principal
D. A and C only E. All
39. Which of the following is incorrect statement about the duties of an agent?
A. To cover expenses of the principal while performing his duty
B. To follow instructions of a principal or custom or nature of the transactions
C. To act with the strictest good faith toward his principal interest
D. To remunerate the principal in the form of salary or commission

8
 E. A and D F. All
40. Which of the following is incorrect statement about the duties of the principal?
A. the principal has the duty to indemnify the agent for acts done beyond his authority.
B. the principal has the duty to remunerate the agent for acts done within his authority.
C. the principal has the duty to indemnify the agent for acts done within his authority.
D. the principal has the duty to avoid a conflict of interest.
E. none
41. Which one of the following is (are) not considered as general agency contract?
A. Acts done for the preservation of property D. Mortgage real estate
B. Sign bills of exchange E.B and D
C. The investment of income and discharging debts F. All
42. Which one of the following is (are) considered as special agency contract?
A. Acts done for the preservation of property D. Sign bills of exchange
B. The collection of debts E. C and D
C. The discharge of debts F. All
43. Which of the following is correct about the liability of the principal?
A. The principal is liable for acts done by the agent on his authority
B. The principal is liable for acts done by the agent beyond his authority
C. The principal is liable for acts done by the agent beyond his authority when he ratified the
act of the agent
D. B& C E. A & C F. A&B
44. One of the following is not a ground for the termination of agency contract.
A. A contract of agency terminates when the agent renounces.
B. A contract of agency terminates when the principal revokes.
C. A contract of agency terminates when the principal ratifies the act of the agent.
D. A contract of agency terminates by the death of either the principal or the agent.
E. All F. none

9
45. Which of the following statement is wrong among the main purposes of security devices?
A. assuring credit from risks of insolvency D. only provides guarantee to the creditor.
B. minimizing creditor`s fear E. A and D
C. helps the debtor to obtain loan services F. all
46. Which of the following is true about surety ship contract?
A. the debtor is expected to provide movable property as a guarantee
B. the debtor is expected to provide a person as a guarantee
C. the debtor is expected to provide immovable property as a guarantee
D. A and C E. All
47. Which of the following is true about simple guarantor?
A. A simple guarantor is a counter guarantor
B. The creditor can claim him payment without asking to the debtor
C. The guarantor can raise benefit of discussion as a defense
D. The guarantor is always liable for the debt when the debtor failed to pay
E. All
48. Which of the following is not true about real security devices?
A. Pledge contract gives more advantage to the creditor
B. Mortgage contract gives more advantage to the debtor
C. Mortgage contract shall always be made in written form
D. It is possible to pledge immovable properties
E. Real security devices are more economical than personal guarantee
49. Which of the following is correct about joint guarantors?
A. A joint guarantors are counter guarantors
B. The creditor can claim them payment without asking to the debtor
C. The guarantors can`t raise benefit of discussion as a defense
D. The guarantors are always liable for the debt when the debtor failed to pay
E. All F. none

10
50. On the functional point of view insurance is defined as:
A. an arrangement for transferring and distributing of risk D. a contract
B. a distribution of risk E. A and B
C. a transfer of risk F. All
51. Which of the following is not true about the legal requirements for the formation of Insurance
contract?
A. The insured and the insurer shall have the capacity to enter in to insurance contract.
B. The insured may not be capable.
C. The insured and the insurer shall give their consent freely.
D. The object of insurance contract shall be clearly and sufficiently defined, possible, lawful
and moral.
E. Insurance contract shall be made in written form and attested by two witnesses.
F. None
52. Which of the following is incorrect about the principle of contribution in insurance contract?
A. It is the right of the insurer to call upon other insurers who have similar liability
B. It is the right of the insured to claim indemnity
C. It is the right of one person who has indemnified another under a legal obligation
D. It is the corollary of the principle of indemnity
E. A and D F. B and C G. All H. None
53. A legal principle of insurance that gives the right to the insurer to deny the claim of the insured
if the insured conceal material facts is:
A. Principle of indemnity D. Principle of insurable interest
B. Principle of contribution. E. Principle of utmost good faith
C. Principle of subrogation F. none
54. Which of the following legal principle of insurance contracts states that the insured shouldn’t
get more than the actual loss?
A. Principle of insurable interest D. Principle of subrogation
B. Principle of contribution E. Principle of indemnity
C. Principle of attachment of risk F. All

11
55. According to the commercial code of Ethiopia Insurance is categorized in to:
A. Insurance of persons D. A &B
B. Insurance of objects E. B and C
C. liability Insurance F. All
56. A principle of insurance which requires cause and effect to ascertain damage is:
A. Principle of insurable interest D. Principle of insurable interest
B. Principle of indemnity E. Principle of contribution
C. Principle of proximate cause F. All
57. Eden has life insurance contract of 100,000 birr with Nile Insurance Company and she pays
3000 birr premium per annum. She has three children registered as beneficiaries in the life
insurance contract. She died because she committed suicide. The beneficiaries (her successors)
claim full payment to the insurer but the insurer denied them. What do you think then the wrong
argument of the insurer?
A. The cause for her death is an excepted peril
B. Because she committed suicide deliberately in order to benefit her children
C. The beneficiaries attained major age
D. The insured paid lesser amount than the claim provided
E. A and B F. C and D
58. Chalew has 15 years old child who caused bodily injury up on his equal age friend, Lema. The
father of the injured child sued Chalew and claim compensation before the court. The court
decided to pay10, 000birr compensation for damage sustained by his child and paid immediately.
What form of insurance liability has Chalew?
A. Chalew has property insurance D. A and C
B. Chalew has third party liability insurance E. B and C
C. Chalew has life insurance F. All
59. Which of the following statement is incorrect about the function of Insurance?
A. Insurance provides assistance to business enterprises
B. Insurance provides financial security to individuals
C. Insurance provides financial stability to commerce, industry and the community.
D. Insurance serves as a basis for credit

12
 E. None F. All
60. Which of the following statement is incorrect about the evaluation method of proximate cause
of insurance policy?
A. If the loss is the result of the operation of a single cause, the loss is an insured peril
B. In case of concurrent causes the situation of excepted and insured perils should observed
C. The result of the successive causes shall be analyzed
D. A and B E. B and C F. All G. None
Part-II: True or False Questions. Say true or false for the following questions and give your
answers on the blank space provided (10% 1pts. each).

1. The only possible dispute resolution mechanism for any conflict is law._______________

2. A sole proprietorship business requires registration and has a legal personality.______________

3. The purpose of security devices is to assure the creditor from risk of non-payment.__________

4. A Private limited company can issue transferable securities like shares._____________

5. The intent of establishing an insurance company is only to meet its business purpose. ________

6. A contract made with a minor is always invalid even though benefits the minor.__________

7. Hierarchy of laws shows hierarchy of important government organs.________________

8. Cancellation of a contact is one of the effects of non-performance of a contract._________

9. Constructive delivery of the thing sold doesn`t put any obligation to the seller.____________

10. An agent can run similar businesses to that of his/her principal._________________

13