Property transactions are inherently complex, often involving intermediaries and legal representations that can significantly impact their validity. In Ethiopia, the intricate details of agency law, coupled with the practicalities of contractual obligations, frequently lead to compelling legal battles. A recent decision by the Federal Supreme Court Cassation Bench (Cassation File No. 236797, dated October 05, 2016 E.C.) sheds crucial light on these dynamics, particularly concerning conflicts of interest in agency and the complexities of restitution.
The dispute began when the appellants, Ato Belay Lapiso and W/ro Merteche Lemma, initiated a lawsuit in a lower court. They alleged that a third party (the 1st defendant in the lower court, not a party to this cassation) had fraudulently obtained a power of attorney using Ato Belay Lapiso’s name and a forged ID. This fraudulent power of attorney was then allegedly used by Ato Mengistu Wakalto (1st respondent) to sell a 252 square meter plot of land in Addis Ababa to his wife, W/ro Genet Kidane (2nd respondent). Separately, it was claimed that W/ro Merteche Lemma’s agent (the 2nd defendant in the lower court, also not a party to this cassation) had acted in bad faith while executing a sale agreement under her power of attorney.
The appellants sought to nullify the sale, arguing that Ato Mengistu Wakalto lacked the legal authority to transfer their property and demanding the return of the property and its title deed from W/ro Genet Kidane.
The initial proceedings saw varied outcomes:
- The Federal High Court ruled in favor of the appellants, declaring the sale contract void from its inception. It emphatically highlighted a clear conflict of interest, stating that Ato Mengistu Wakalto, acting as an agent for Ato Belay Lapiso, could not legitimately contract with his own wife (W/ro Genet Kidane) as the buyer. This was deemed an action beyond his granted authority and legally ineffective.
- The Federal Supreme Court (Appellate Bench), however, overturned this decision. It found no conclusive evidence that Ato Mengistu Wakalto had obtained his power of attorney illegally. More significantly, it focused on the practical implications: W/ro Genet Kidane had taken possession of the empty land and constructed a G+2 building, making it extremely difficult, if not impossible, to return the parties to their original pre-contractual state. Thus, the Appellate Bench decided that the contract should not be voided.
The appellants brought the matter before the Federal Supreme Court Cassation Bench, urging it to review the appellate decision. The Cassation Bench primarily focused on two critical legal questions: the legality of the power of attorney (specifically, the conflict of interest aspect) and the feasibility of undoing the transaction, known as restitution.
The Agent’s Fiduciary Duty: A Clear Conflict of Interest
The Cassation Bench agreed with the Federal High Court’s initial finding regarding the conflict of interest. It explicitly stated that the contract between Ato Mengistu Wakalto (the agent) and his wife (the buyer) represented a clear conflict of interest. Referencing Articles 2208 and 2209 of the Ethiopian Civil Code, the court reiterated the fundamental principle that an agent must always act diligently and in good faith, solely for the benefit of their principal. Contracting with one’s own spouse in such a scenario inherently compromises this fiduciary duty, creating a situation where the agent’s personal interest (or that of their immediate family) could easily override the principal’s best interest. Therefore, the Cassation Bench concluded that this conflict of interest provided a legitimate reason to void the sale contract. It criticized the Appellate Bench for failing to adequately consider this crucial point.
The Impossibility of Restitution: A Practical Limitation
Despite acknowledging the legal flaw caused by the conflict of interest, the Cassation Bench then turned to the issue of restitution. Civil Code Article 1815 generally mandates that when a contract is voided, the parties must be restored to their pre-contractual positions. However, Civil Code Article 1817 provides a critical exception: if undoing the performance of the contract is impossible or highly difficult, the executed actions may remain as they are.
The Cassation Bench upheld the Appellate Court’s finding that returning the parties to their original state was indeed difficult. The uncontested fact that W/ro Genet Kidane had taken possession of the empty plot and built a substantial G+2 structure on it presented a significant practical obstacle to restitution. The court emphasized that this was a factual determination confirmed by the lower court, and new arguments regarding this fact could not be introduced at the cassation stage (Civil Procedure Code Article 329). Furthermore, the Cassation Bench noted consistency with its own prior binding decisions (e.g., Cassation File No. 39336, Vol. 8), which support upholding transactions where restitution is practically infeasible due to significant developments.
Ultimately, the Federal Supreme Court Cassation Bench decided to reverse the Federal High Court’s initial ruling but upheld the outcome of the Federal Supreme Court Appellate Bench’s decision from a results perspective (Civil Procedure Code Article 348(1)). This means that despite the recognized conflict of interest that legally justified voiding the contract, the sale itself was allowed to stand due to the severe practical difficulties associated with undoing the construction and returning the property to its original state.