The ETC claimed that BoA agreed to provide a guarantee worth 1.8 million Br if DA.T.MA Trading and Transport Plc failed to discharge the contractual obligation of delivering 160,200 wooden poles to the ETC within 10 months after the agreement was made. DA.T.MA Trading allegedly delivered only 9,102 poles within the agreed time, leading the ETC to make the claim.
BoA, however, rejected the claim, saying that the performance bond agreement did not meet the basic formalities of an agreement. It does not contain the signature of the ETC and DA.T.MA and is not attested by two witnesses. The second point of argument focused on the performance bond agreement that was concluded a month before the principal supply contract between the ETC and DA.T.MA. The latter was supposed to be the first.
"An agreement of guarantee is an accessory to the principal agreement, so it should not be concluded before the principal agreement," a legal expert at BoA told Fortune.
The performance agreement was concluded between the ETC and Menelik Solomon, former manager of the Gofa Branch of BoA, who had disappeared before this suit had even been filed, according to Negatu Tesfaye, legal counsellor for BoA. Officials at the bank denied knowledge of any deal between the bank's branch manager and the ETC until they were approached by the ETC for the renewal of the contract, which was for six months, Negatu said.
"Luckily for us, the agreement failed to meet formality requirements of the law," said Negatu.
The court stated that there was no special law governing performance bond contracts and since the bank does not provide insurance services, the agreement cannot be regarded as a contract of insurance. It, therefore, stated that ordinary laws of contract relating to guarantees would apply in this case.
A contract for guarantee must be made in writing, signed by the parties involved, and attested by two witnesses to have legal effect on the parties. The contract in dispute lacks these basic formalities, the court said. As a result, the claim of the plaintiff was turned down by the court.
Experts in the Legal Department of the ETC have declined to comment on the issue saying that information was requested of them on short notice.
However, the corporation will appeal this week, according to an official at the ETC.
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