Date: June 2, 2014 E.C.

Legal Rule:

• Liability of Check Issuer: The issuer of a check is liable for the amount stated on the check unless they can prove a valid defense. (Commercial Code Articles 827(a) and 854.)
• "Arata" (High-Interest Loan) Defense: To successfully defend against payment of a check by claiming it was related to an "arata" loan, the issuer must prove that the payee exploited their financial distress and charged excessive interest as defined under Criminal Code Article 712.
• Applicability of Written Loan Agreement Requirement: The requirement for a written loan agreement (Civil Code Article 2472) does not apply when a case is based on checks.

Summary of Facts:

The Appellants sued the Respondent for 473,000 Birr based on four bounced checks. The Respondent claimed the checks were for an "arata" loan, not a business transaction. The lower courts ruled against the Appellants, stating they failed to prove a business relationship.

Decision of the Supreme Court:

The Supreme Court reversed the lower courts' decisions. Since the Respondent admitted issuing the checks, they had the burden of proving a valid defense. The Respondent failed to provide sufficient evidence to support their "arata" claim (exploitation and excessive interest). The Court clarified that the requirement for a written loan agreement does not apply to check cases. The Respondent was ordered to pay the full amount plus interest and legal costs.