Date: February 27, 2012 E.C.

Legal Rule:

• Validity of Loan Agreements: Loan agreements exceeding 500 Birr require written proof. (Civil Code Article 2472(1)) A loan agreement signed by an unauthorized person is invalid. (Civil Code Article 1678)
• Proof of Loan: While a loan agreement may be invalid due to lack of authority of the signatory, a loan can still be proven through other evidence, such as a company resolution acknowledging the debt.
• Conflict of Interest: Serving as both lender and company manager does not automatically create a conflict of interest, especially if the loan is interest-free.
• Interest Rate: In the absence of a valid agreement on the interest rate, the legal rate of 9% per annum applies.

Summary of Facts:

The Respondent sued the Appellant for 6,565,000 Birr based on two loan agreements. The Appellant denied borrowing the money, arguing the agreements were invalid (unauthorized signatory, conflict of interest, and that the funds were for overseas hotel services). The Arbitration Tribunal and the Federal Supreme Court ruled in favor of the Respondent.

Decision of the Supreme Court:

The Supreme Court partially amended the lower courts' decisions. The loan agreements were invalid due to the unauthorized signatory. However, other evidence (company resolution) proved the loan existed. The conflict of interest claim was dismissed. The Appellant must pay the principal amount (5,520,000 Birr). The interest rate was reduced to 9% per annum, starting from the date of repayment demand.

Dissenting Opinion:

One judge dissented, arguing that the loan agreements were invalid, and the company resolution and audit reports were insufficient proof under Article 2472, which requires direct written proof of a loan.