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Creditor’s right on Insured Pledge EIC vs. CBE C/F/N 38572

Ethiopian Insurance Corporation -vs.- Commercial Bank of Ethiopia

Federal Supreme Court Cassation File No. 38572 (October 27, 2009)

Holding of the Court:

If the pledge that is given for a loan is insured and becomes subject to an accident, the creditor can request the insurer to pay compensation even if the money loaned is lesser in amount than the value of the pledged property.

Article 2858 of the Civil Code, Article 678 of the Commercial Code

Cassation File No. 38572 Tikimt 17, 2002 E.C (October 27, 2009)

Federal Supreme Court Cassation Division

Justices: Menberetsehai Tadesse, Hirut Mellese, Taffesse Yirga, Almaw Wolie, Ali Mohammed

Petitioner: Ethiopian Insurance Corporation

Respondent: Commercial Bank of Ethiopia

The court has examined the case and rendered the following judgment.

Judgment

The case is brought because the petitioner submitted its petition dated Sene 9, 2000 (June 16, 2008) to the Cassation Division of the Federal Supreme Court claiming that the judgment rendered by the Federal First Instance Court and confirmed by the Civil Bench of the Federal Supreme court has a fundamental error of law.

The current respondent was the plaintiff in the Federal First Instance Court. It held as a pledge the truck owned by Ato Hassan Abdela Plate No. 3- 16015 and trailer number 3-03383 for the Birr 75,000 (seventy five thousand) Ato Hagos Tedla borrowed from the Commercial Bank of Ethiopia Nifas Silk Branch. The Respondent and the debtor Hagos Tedla agreed that the pledge be insured, and the truck was insured with the defendant, the Ethiopian Insurance Corporation West Main Branch, with an estimated value of Birr  350,000 (three hundred fifty thousand), and they have accordingly been paying premium.

The truck, insured by the petitioner, encountered an accident on Hidar 28, 1988 E.C (December 8, 1995) and was alleged to be completely destroyed. A suit was filed for the payment of the value of the damaged truck because the plaintiff (current petitioner) refused to pay the estimated value of the vehicle

i.e. 350,000 (three hundred fifty thousand). The petitioner (the defendant in  the lower court) argued that the respondent is not entitled to bring the suit as they did not have a contractual agreement. Moreover, it contested liability because technical evidence is not brought to prove that the car was damaged due to failure of the steering wheel. It further argued that if it has to pay, the amount should only involve the loan given by the respondent to Hagos Tedla,

i.e. Birr 75,000 (seventy five thousand). The lower court rejected petitioner’s arguments and decided that the damage amounting to Birr 350,000 (three hundred fifty thousand) caused due to the total destruction of the pledge should be paid to the respondent with an interest rate of nine percent starting from Hidar 8,1998 E.C (November 17, 2005).

The Ethiopian Insurance Corporation was dissatisfied with the decision of the Federal First Instance Court, and brought an appeal to the Federal High Court. The latter reversed the decision of the lower court and remanded the case to the First Instance Court, stating that the amount of damage sustained is not verified in addition to raising other related issues. The respondent brought an appeal to the Federal Supreme Court against this decision and the Court reversed the decision of the High Court confirming the decision of the Federal First Instance Court.

The petition submitted to the Cassation Division of the Supreme Court, by Ethiopian Insurance Corporation contests the decision of the Federal Supreme Court arguing that the respondent was allowed to bring the suit and litigate without verifying whether it has recovered the amount it lent, and that this is against the fundamental principles and objectives of Insurance. It further argued that, the respondent’s claim of interest and profit is inappropriate because the amount lent is Birr 75,000 (seventy five thousand). Accordingly, it requested for the reversal of the decisions arguing that, the decisions of the lower court and the Civil bench of the Appellate Division of the Federal Supreme Court are not in conformity with the relevant civil and commercial laws, and hence have a fundamental error of law.

The respondent, on the other hand, argued that the amount due for the damage it sustained as a result of delayed settlement of debt, interest accrued and other cost is Birr 350,000 (three hundred fifty thousand). The respondent further argued that it entered into an insurance contract with the petitioner and paid premiums not only for the Birr 75,000 (seventy five thousand) it lent to the borrower but also to the vehicle held as a pledge, whose price equals Birr 350,000 (three hundred fifty thousand). Thus it argued that the decisions of the

Appellate Division of the Federal Supreme Court and the Federal First Instance Court do not have an error of law. It thus contended that the amount requested does not exceed the insurance coverage stated in the insurance contract.

The Cassation Division of the Federal Supreme Court has found the argument of the petitioner unacceptable after having observed that the petitioner has not submitted evidence which proves its argument that the vehicle is not completely destroyed. The respondent has taken as a pledge a car worth Birr 350,000 (three hundred fifty thousand) when it provided the loan to the debtor who is the owner of the truck. By virtue of Article 2858 (1) of the Civil Code, the right of the respondent on the collateral includes the amount of the loan that remains to be paid, the interest that accrues due to the non-performance of the loan agreement and other expenses not paid.

The respondent has made it clear to the lower court that it is entitled to receive from the debtor Birr 350,000 which covers the amount of the money lent, interest and other payments. It is also established that there is property held as a pledge to secure the payment of debt. The respondent knowing that the property it held as a pledge is movable and exposed to danger bought an insurance coverage worth Birr 350,000 (three hundred fifty thousand). It did so to increase its chance of recovering the money that it lent, the interest thereof and other payments.

Hence, this court has confirmed the decisions of the lower court and the Appellate Division of the Supreme Court and has found that that the petitioner is liable to pay to the respondent Birr 350,000 with an interest to be calculated starting from Hidar 8, 1988 E.C (November 18, 1995) as per Article 678 of the Commercial Code and the insurance contract. The court has thus rendered the following decree according to Article 348(1) of the Civil Procedure Code.

Decree

The decisions of the appellate division of the Federal Supreme Court and the Federal First Instance Court are affirmed.

Signature of five justices

Source: Federal Supreme Court Cassation Division Decisions

Volume 10, pp. 289-291

Abridged translation: Maereg G. Gidey

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